E Comerce

Chapter 5 Company-Centric B2B and Collaborative Commerce Prentice Hall, 2003

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Learning Objectives Describe the B2B field Describe the major types of B2B models Describe the characteristics of the sellside marketplace Describe the sell-side intermediary models Describe the characteristics of the buyside marketplace and e-procurement Prentice Hall, 2003

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Learning Objectives (cont.) Explain how forward and backward auctions work in B2B Describe B2B aggregation and group purchasing models Describe collaborative e-commerce and interorganizational systems Describe infrastructure and standards requirements for B2B Prentice Hall, 2003

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General Motors’ B2B Initiatives The Problem EC initiatives—build-to-order project to be in place by 2005 reducing inventory of finished cars What to do with manufacturing machines that are no longer sufficiently productive (assets problem) Resource problem relating to procurement of commodity products Prentice Hall, 2003

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General Motors’ (cont.) The Solution TradeXchange (now part of Covisint) online auctions of items like used machines for manufacturing Significantly decreases time for sales Increases dollar amount of the sales

EC initiatives at TradeXchange Capital assets problem—implemented its own electronic market to conduct forward auctions Procurement problem—automated the bidding, creating online reverse auctions 5 on its e-procurement site Prentice Hall, 2003

General Motors’ (cont.) The Results Within just 89 minutes after the first forward auction opened, eight presses were sold for $1.8 million In the first online reverse auction, GM purchased a large volume of rubber sealing packages for vehicle production at a significantly lower than the price GM had been paying through negotiated by manual tendering Prentice Hall, 2003

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Concepts, Characteristics, and Models of B2 EC Basic B2B Concepts Business-to-business e-commerce (B2B EC) —transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B

Market Size and Content Expected to grow from $1.1 trillion in 2003 to $10 trillion by 2005, the percentage of Internet-based B2B from 2.1% in 2000 to Prentice Hall, 2003

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Concepts, Characteristics, and Models of B2 EC (cont.) B2B EC Characteristics Parties to the transaction Online intermediary—an online third-party that brokers a transaction between a buyer and a seller; can be virtual or click-and-mortar; buyers; sellers

Types of transactions Spot buying—the purchase of goods and services as they are needed, usually at prevailing market prices Strategic sourcing—purchases involving long8 term contractsPrentice thatHall, are usually based on 2003

Concepts, Characteristics, and Models of B2 EC (cont.) Types of materials Direct materials—materials used in the production of a product (e.g., steel in a car or paper in a book) Indirect materials—materials used to support production (e.g., office supplies or light bulbs) MROs (maintenance, repairs, and operations)—indirect materials used in activities that support production Prentice Hall, 2003

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Concepts, Characteristics, and Models of B2 EC (cont.) Direction of trade Vertical marketplaces—markets that deal with one industry or industry segment (e.g., steel, chemicals). Horizontal marketplaces—markets that concentrate on a service or a product that is used in all types of industries (e.g., office supplies, PCs)

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Concepts, Characteristics, and Models of B2 EC (cont.) The Basic B2B Transaction Types Sell side—one seller to many buyers Buy side—one buyer from many sellers Exchanges—many sellers to many buyers Collaborative commerce— communication and sharing of information, design, and planning among business partners Prentice Hall, 2003

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Exhibit 5.1 Types of B2B E-Commerce

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One-to-Many and Many-to-One: Company-Centric Transactions Company-centric EC—e-commerce that focuses on a single company’s buying needs (many-to-one, or buyside) or selling needs (one-to-many, or sell-side) Private e-marketplaces—markets in which the individual sell-side or buyside company has complete control over participation in the selling or buying transaction Prentice Hall, 2003

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Many-to-Many: Exchanges Exchanges—many-to-many emarketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other; also called trading communities, or trading exchanges Public e-marketplaces—third-party markets that are open to all interested parties (sellers and buyers) Prentice Hall, 2003

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Concepts, Characteristics, and Models of B2 EC (cont.) Supply chain relationships in B2B Interrelated subprocesses and roles B2B applications offer competitive advantages for supply chain management (SCM)

Virtual service industries in B2B Travel and tourism services Real estate Online stock trading Electronic payments Online financing Prentice Hall, 2003

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Concepts, Characteristics, and Models of B2 EC (cont.) Benefits of B2B Eliminates paper and reduces administrative costs Expedites cycle time Lowers search costs and time for buyers Increases productivity of employees dealing with buying and/or selling Reduces errors and/or improves quality of services Reduces inventory levels and costs Increases production flexibility, permitting justin-time delivery Facilitates mass customization 16 Prentice Hall, 2003

Sell-Side Marketplaces:One-to-Many Sell-side e-marketplace—a Webbased marketplace in which one company sells to many business buyers, frequently over an extranet 3 major methods for direct sale in the one-to-many model: Selling from electronic catalogs Selling via forward auctions One-to-one selling under a negotiated, long-term contract Prentice Hall, 2003

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Sell-Side Marketplaces (cont.) Virtual sellers—sellers in the sell-side marketplace can be click-and-mortar manufacturers or intermediaries, usually distributors or wholesalers Customer service Milacron, Inc. Site contains 55,000 products, easy to use, securely handles selection, purchase, application Technical service—expanded to provide a higher level of service Prentice Hall, 2003

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Buying from Virtual Seller Bigboxx.com Bigboxx.com.hk of Hong Kong B2B office supply retailer services Goal—sell products in various SE Asian countries Offers more than 10,000 items Uses more than 300 suppliers

Company portal attractive, easy to use Browse online catalogs Use search engines Payments—cash or check upon delivery, automatic payments, credit card, purchasing card Prentice Hall, 2003

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Bigboxx.com (cont.) Delivery Owns trucks and warehouses Delivery scheduled online Ordering system integrated with SAP-based backoffice system

Value-added services Track status of order Check stock availability Promotions Customized prices Group accounts and central approval Standing orders automatically activated Large number of reports and data available Prentice Hall, 2003

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Exhibit 5.2 Sell-Side B2B Marketplace Architecture

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Direct Sales from Catalogs Companies may: Offer one catalog for all customers Customized catalog for each customer Facilitate the B2B direct sale by providing the buyer with a buyer customized shopping cart

Configuration and customization Efficient customization for direct sales Business customers customize products, receive price quote, submit order Prentice Hall, 2003

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Direct Sales from Catalogs (cont.) Benefits Lower order-processing costs Faster ordering cycle Fewer errors in ordering and product configuration Lower search costs for buyers Lower search costs for sellers Lower logistics costs Prentice Hall, 2003

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Direct Sales from Catalogs (cont.) Benefits (cont.) Ability to offer different catalogs and prices to different customers and to customize products and services efficiently

Limitations Channel conflicts with distribution systems High cost when traditional EDI used Large number of business partners is needed to justify Prentice system Hall, 2003

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Selling Via Auctions Using auctions on the sell-side Revenue generation Increased page views Stickiness—characteristic of customer loyalty to a Web site, demonstrated by the number and length of visits to a site

Member acquisition and retention—bidding transactions result in additional registered members

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Selling Via Auctions (cont.) Selling from own site when: Large companies that conduct auctions frequently don’t benefit from using intermediaries E-marketplace already in use, cost of adding auction not too high

Intermediary-oriented e-marketplace —an e-marketplace in which intermediaries operate Prentice Hall, 2003

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Selling Via Auctions (cont.) Using intermediaries when: No resources required Own and control auction information Fast time to market Searching and reporting Search and report all auction activities Standard reports available Additional analysis of complex information Prentice Hall, 2003

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Selling Via Auctions (cont.) Billing and collection Automatic calculation of shipping weights and charges Payment—encrypted credit card data Billing information—easily downloaded into existing systems

Successful if: Sufficient number of loyal customers Products well known Price not major purchasing criteria Prentice Hall, 2003

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CISCO Connection Online (CCO) Benefits—saves the company $363 million per year in technical support, human resources, software distribution, marketing material Customer service—Cisco Connection online Online ordering—Internet Product Center builds virtually all products to order Order status—customer tools for finding answers to order status inquiries Prentice Hall, 2003

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Cisco Connection Online (CCO) (cont.) Benefits to Cisco Reduced operating costs for order taking Enhanced technical support and customer service Reduced technical support staff cost Reduced software distribution costs Lead times reduced fro 4-10 days to 2-3 days

Benefits to customers Quick order configuration Immediate cost determination Collaboration with Cisco staff Prentice Hall, 2003

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Marshall Industries Marshall Industries—(a subsidiary of

AvnetMarshall—avnet.com) multinational

distributor of electronic components known for its innovative uses of IT and the Web Products and services MarshallNet Marshall on the Internet (portal) Strategic European Internet Electronic Design Center PartnerNet NetSeminar Education and News Portal Prentice Hall, 2003

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Marshall Industries (cont.) Survival strategy Continuous improvement programs and innovations Team-based organization, flat hierarchy, decentralized decision making Profit sharing compensation for salespeople CRM highly promoted Web-based services create value between suppliers and customers EC initiatives supported by: Changing internal Prentice Hall,organization 2003

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Boeing’s PART Marketplace Acts as an intermediary between the airlines and parts’ suppliers Provides a single point of online access for airlines and parts’ providers to access the data needed

Goal: provide its customers with onestop shopping for online parts and maintenance information and ordering capability Prentice Hall, 2003

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Boeing’s PART Marketplace (cont.) Spare parts business using traditional EDI Mechanic tells purchasing department parts are needed, purchase is approved, purchase is made Large airlines connect to Boeing's VAN Boeing finds parts and delivers

Debut of PART on the Internet Encourages customers to order parts electronically—cheap, easy, fast Prentice Hall, 2003

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Boeing’s PART Marketplace(cont.) Benefits of PART online Improved customer service Significant operating savings New sales opportunities Customer service online reduced Portable access to technical drawings/support Portable Maintenance Aid (PMA)—solves maintenance problems Prentice Hall, 2003

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Boeing’s PART Marketplace (cont.) Benefits to Boeing’s customers Increased productivity—less time searching for information Reduced costs—delays at gate reduced because all information is available Increased revenues—faster service provides time savings

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Buy Side Marketplaces: One-from-Many Procurement methods Buy from manufacturers, wholesalers, or retailers at their storefronts, from catalogs,and by negotiation Buy from the catalog of an intermediary Buy from an internal-buyer’s catalog Conduct a bidding or tendering system Buy at private or public auction sites Join a group-purchasing system Prentice Hall, 2003

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Buy Side Marketplaces: One-from-Many (cont.) Procurement management—the coordination of all the activities relating to purchasing goods and services needed to accomplish the mission of an organization Inefficiencies in procurement management Purchasing personnel spend time and effort on procurement activities Qualifying suppliers Negotiating prices and terms Building rapport with strategic suppliers Carrying out supplier evaluation and certification Prentice Hall, 2003

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Buy Side Marketplaces: One-from-Many (cont.) Buyers are sometimes too busy with the details of the smaller items Organizations address this imbalance by implementing new purchasing models

Potential inefficiencies: Delays Paying too much for rush orders Maverick buying—unplanned purchases of items needed quickly, often from nonapproved vendors or at higher prices Prentice Hall, 2003

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Exhibit 5.4 Traditional Procurement Process

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Buy Side Marketplaces: One-from-Many (cont.) Goals of e-procurement Increase purchasing agent productivity Lower purchasing prices of items Improve information flow and management Minimize maverick (unplanned) buying Improve payment process Streamline purchasing process to make it simple and fast Prentice Hall, 2003

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Buy Side Marketplaces: One-from-Many (cont.) Goals of e-procurement (cont.) Reduce administrative processing cost per order Find new suppliers and vendors to provide faster/cheaper goods and services Integrate procurement process with budgetary control in an efficient and effective way Minimize human errors in buying or 42 shipping process Prentice Hall, 2003

Buy Side Marketplaces: One-from-Many (cont.) Implementing e-procurement Fit e-procurement into company EC strategy Review and change procurement process itself Provide interfaces between eprocurement with integrated EIS Coordinate buyer’s information system with the sellers Prentice Hall, 2003

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Buy Side E-Marketplaces: Reverse Auctions Buy-side e-marketplace—a Web-based marketplace in which a buyer opens an electronic market on its own server and invites potential suppliers to bid on the items the buyer needs; also called the reverse auction, tendering, or bidding model Request for quote (RFQ)—the “invitation” to a buy-side marketplace 44 Prentice Hall, 2003

Exhibit 5.6 Buy-Side B2B Market Architecture

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Conducting Reverse Auctions Reverse auctions administered from a company’s Web site Bidding process lasts a day or more Bidders may bid only once or view the lowest bid and rebid several times

Increasing number of reverse auction sites makes it impossible for suppliers to monitor all of them Online directories list open RFQs Use software search-and-match agents to reduce the human burden in the bidding process Prentice Hall, 2003

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Bidding Through a Third-Party Auctioneer: Freemarkets.com United Technologies Corp. needs suppliers to make $24 million worth of circuit boards 2,500 suppliers are identified as possible contractors List is submitted to FreeMarkets (freemarkets.com)

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Freemarkets.com (cont.) FreeMarkets reduced the list to 50, based on considerations including: Plant location Size of supplier Plant capacity Customer feedback Detailed evaluation of the candidates

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Freemarkets.com (cont.) 3-hour auction conducted of online competitive bidding: First bid was seen by all bidders Using reverse auction approach, the bidders reduced their bids

Comprehensive analysis of several of the lowest bidders Then recommended the winners and collected its commission fees Prentice Hall, 2003

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Procurement Revolution at GE TPN (now part of gxs.com) Purchasing was inefficient—too many administrative transactions Process for each requisition took 7 days Complex and time-consuming Could only send out bids for 2 or 3 suppliers

Trading Process Network (TPN)—electronic bids Entire process takes 7 days (for suppliers to bid) 2 hours to send information to suppliers 50 Prentice Hall, 2003

Procurement Revolution at GE (cont.) Benefits to GE Labor declined 30% and material costs declined 5%-50%--wider base of suppliers online Redeployment of 50% of the staff Takes half the time to identify suppliers, prepare a request for bid, negotiate a price, and award the contract Invoices automatically reconciled reflecting modifications Prentice Hall, 2003

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Procurement Revolution at GE (cont.) Benefits to buyers Worldwide supplier partnerships Current business partners Strengthen relationships Streamline sourcing process

Rapid distribution of information Transmit electronic drawings to multiple suppliers Decrease sourcing cycle time Quick receipt and comparison of pricing Prentice Hall, 2003

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Procurement Revolution at GE (cont.) Benefits to suppliers Increased sales volume Expanded market reach, finding new buyers Lowered administration costs for sales and marketing activities Shortened requisition cycle time Improved sales staff productivity Streamlined bidding process Prentice Hall, 2003

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Aggregating Catalogs Aggregating suppliers’ catalogs: an internal marketplace Maverick buying to save time leads to high prices Aggregating all approved suppliers’ catalogs in one place

Reduced number of suppliers Buyers at multiple corporate locations Fewer and remote suppliers Larger quantity/lower costs Prentice Hall, 2003

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Buying from MasterCard International’s Internal Catalog Online buying program at MasterCard: Allows corporate buyers to select goods and services from company’s electronic catalog Goal is to consolidate buying activities from multiple corporate sites, improve processing costs, reduce the supplier base

Procurement department defines: Scope of products or projects to buy Invites vendors to bid or negotiate prices Prentice Hall, 2003

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MasterCard International (cont.) Contract prices are stored in the internal electronic catalog Final buyer at MasterCard compares available alternatives Organizational purchasing decision coupled with an internal workflow management system Internal electronic catalog is updated manually or by software agents Payments are made with MasterCard’s corporate procurement card By 2002, the system was being used by 56 Prentice Hall, 2003 more than 2,500 buyers

Group Purchasing Group purchasing—aggregation several buyers into volume purchases, so that better prices can be negotiated Internal aggregation Economy of scale Reduced transaction processing cost

External aggregation Aggregating demand online Putting together orders from multiple buyers to make large volumes/lower costs 57 Prentice Hall, 2003

Exhibit 5.7 Group Purchasing Process

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Electronic Bartering Bartering exchange—an intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants Exchange of goods or services without the use of money Exchange a surplus for other need Benefits: Faster than manually Easier to match Prentice Hall, 2003

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Collaborative Commerce (C-Commerce) Collaborative commerce (c-commerce)— commerce consisting of activities between business partners in jointly planning, designing, developing, managing,and researching products and services Web-based systems used between and among suppliers for: Communication Design Planning Information sharing Information discovery Prentice Hall, 2003

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Collaborative Commerce (cont.) Varieties of c-commerce: Joint design efforts Forecasting Between and within organizations

Aids communication and collaboration between headquarters and subsidiaries,

franchisers and franchisees

C-commerce platform provides e-mail,

message boards, chat rooms, online corporate data access around the globe, 61 no matter what Prentice the Hall, time 2003 zone

Webcor Construction Goes Online with Its Partners Webcor suffered from too much paperwork and poor communication with its: Architects Designers Building owners Subcontractors

Webcor’s goal: to turn its computeraided design (CAD) drawings, memos, and other information into shared Prentice Hall, 2003

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Webcor (cont.) Webcor uses ASP that hosts its projects on a secured extranet Major problem was getting everyone to accept software: Complex User training is necessary

Webcor was in a strong enough position to choose not to partner with anyone who would not use ProjectNet Prentice Hall, 2003

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Webcor (cont.) Webcor’s business partners can post send, or edit CAD drawings, digital photos, memos, status reports, project histories Partners have instant access to new building drawings Central meeting place where users can both download and transmit information to all parties, all with a PC Prentice Hall, 2003

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Retailer–Supplier Collaboration: Target Corporation Target Corporation is a large retail conglomerate: Conducts EC activities with about 20,000 trading partners 1998—established an extranet-based system for those partners that were not connected to its VAN-based EDI.

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Target Corporation (cont.) The extranet enabled the company to: Reach many more partners, Use many applications not available on the traditional EDI Streamline its communications and collaboration with suppliers Business customers to create personalized Web pages Prentice Hall, 2003

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Continuous Replenishment: Warner-Lambert Warner-Lambert (WL) served as a pilot site for a program called Collaborative Planning, Forecasting, and Replenishment (CPFR) Shared strategic plans, performance data, and market insight with Wal-Mart Trading partners collaborate on making demand forecasts WL increased its products’ shelf-fill rate from 87 percent to 98 percent Prentice Hall, 2003

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Warner-Lambert (cont.) WL is involved in another collaborative retail industry project—Supply-Chain Operations Reference (SCOR): Divides supply chain operations into parts Gives a framework with which to evaluate the effectiveness of their processes along the same supply chains to: Manufacturers Suppliers Distributors Retailers Prentice Hall, 2003

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Reduction of Design Cycle Time: Adaptec, Inc. Microchip manufacturer supplying electronic equipment makers Outsourced manufacturing tasks Delivery times exceeded their competitors

Solution to the problem Extranet and enterprise-level supply chain integrated software Significantly reduced order-to-product delivery time Prentice Hall, 2003

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Reduction of Product Development Time: Caterpillar, Inc. Heavy machinery manufacturer uses extranet Request for customized component directly to designers and suppliers ship to buyers Connect engineering and manufacturing division with worldwide Suppliers

Distributors

Factories Customers

Overseas Prentice Hall, 2003

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Barriers to C-Commerce C-commerce is moving ahead fairly slowly because: Technical reasons involving integration, standards, and networks Security and privacy concerns over who has access control of information stored in a partner’s database Internal resistance to new models and approaches Lack of internal skills to conduct ccommerce Prentice Hall, 2003

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Interorganizational Collaboration at Nygard of Canada Nygard has become a leader in adopting IT and e-commerce in the apparel industry Company stays competitive by using EC to control costs of labor and manufacturing Developed an ERP and supply chain management that controls all internal operations, purchasing, product development, accounting, production planning, sales

This enabled the company to develop tight integration with its trading partners Prentice Hall, 2003

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Nygard of Canada (cont.) The moment that a customer buys a pair of pants at a partner’s retail store: Information moves from the POS terminal Automatically generates a reorder at Nygard

SCM: Matches customers’ orders with the right fabrics Searches the market pool for the most efficient combinations of other material for use with those fabrics

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Nygard of Canada (cont.) Sales trigger orders Manufacturing automatically industries, and global manufacturers are willing to operate with razor-thin margins as fabrics, zippers, and buttons The moment that raw material is used, an automatic reorder of the material is generated Allows just-in-time production Quick order delivery (sometimes same day) Prentice Hall, 2003

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Nygard of Canada (cont.) Web-based control system enables the company to: Conduct detailed profitability studies Decisions are evaluated by impacts on the bottom line Decision support systems (DSS) models are used for this purpose

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Infrastructure for B2B Server to host database and applications Software for executing sell-side (catalogs) Software for conducting auctions and reverse auctions Software for e-procurement (buy-side) Software for CRM Security hardware and software Software for building a storefront Software for building exchanges Telecommunications networks and 76 protocols Prentice Hall, 2003

Extranet and EDI Value-added networks (VANs)—private, third-party-managed networks that add communications services and security to existing common carriers; used to implement traditional EDI systems Internet-based EDI—EDI that runs on the Internet and so is widely accessible to most companies, including SMEs Prentice Hall, 2003

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Extranet and EDI Extranets—secured networks (by VPN), usually Internet-based, that allow business partners to access portions of each other’s intranets; “extended intranets.”

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Integration Integration with existing information systems issues Intranet-based work flow Database management systems (DMBS) Application packages ERP Back-end sell-side integration works for sellers but not buyers and vice versa Prentice Hall, 2003

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Integration (cont.)

Integration with business partners Easy integration with one company-centric side Not easy to integrate for many buyers or sellers Need buyer owned shopping cart that can interface with back-end information systems Prentice Hall, 2003

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The Role of XML in B2B Integration Companies interact easily and effectively by connecting to their servers, applications, databases Standard protocols and datarepresentation schemes are needed Web is based on the standard communication protocols useful only for displaying static visual Web pages: TCP/IP HTTP HTML

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The Role of XML in B2B Integration (cont.) XML (eXtensible Markup Language)— standard (and its variants) used to improve compatibility between the disparate systems of business partners by defining the meaning of data in business documents Used to increase: Interactivity Accessibility with speech recognition systems Prentice Hall, 2003

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XML Unifies Air Cargo Tracking System B2B intermediary, TradeVan Information Services of Taiwan provides information services about the cargo flights of different airlines Different information systems have different query results XML facilitates data exchange between heterogeneous databases Information can be presented on wireless application protocol (WAP)Prentice Hall, 2003 based cell phones

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Air Cargo Tracking System (cont.) System is expected to: Reduce delays significantly Benefit of all members of the supply chain Returns a standardized yet personalized presentation for different airlines Enables customs brokers to reduce the cycle time by preparing declarations of imports faster Prentice Hall, 2003

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Air Cargo Tracking System (cont.) Buyers and other supply chain partners can schedule production lines with precision and in advance Quality of door-to-door delivery companies is improved through fast communication Answers to queries can be derived much faster Improves the supply chain by reducing: Delivery lead times Inventory levels Prentice Hall, 2003

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The Role of Software Agents in B2B EC Agent’s role in the sell-side marketplace B2C comparison-shopping B2B agents collect information from sellers’ sites for buyers

Agent’s role in the buy-side marketplace Assisting large number of buyers requesting quotes from multiple potential Prentice Hall, 2003 suppliers in buy-side

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Managerial Issues Can we justify the cost? Which vendor(s) should we select? Which model(s) should we use? Do we need B2B marketing? Should we reengineer our procurement system? What restructuring will be required for the shift to e-procurement? What integration would be useful? What are the ethical issues in B2B? Prentice Hall, 2003

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Summary The B2B field The major B2B models The characteristics of sell-side marketplaces Sell-side intermediaries The characteristics of buy-side marketplaces Forward and reverse auctions B2B aggregation and group purchasing Collaborative EC Characteristics Prentice of Internet-based EDI and Hall, 2003

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