Chapter 6 : Business to Business Electronic Commerce ( B2B EC )

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1www.prestonians.webnode.co

Chapter 6

Business-to-Business Electronic Commerce

(B2B EC)

2www.prestonians.webnode.com

Learning Objectives

Describe the B2B fieldDescribe the major types of B2B modelsDescribe the characteristics of the sell-side marketplaceDescribe the sell-side intermediaries modelsDescribe the characteristics of the buy-side marketplace and e-procurement

Explain how forward and backward auctions work in B2BDescribe B2B aggregation and group purchasing modelsDescribe collaborative e-commerceUnderstand issues concerning the implementation of company-centric B2BDistinguish Internet-based EDI from traditional EDI

Learning Objectives (cont.)

General Motors’ B2B Initiatives

EC initiatives—build-to-order project to be in place by 2005 reducing inventory of finished cars

Selling capital assetsTradeXchange online auctions of items like used machines for manufacturing

Significantly decreases time for salesIncreases dollar amount of the sales

General Motors’ B2B Initiatives

EC initiatives at TradeXchangeBuying commodity products--$1 billion annual expenditure for direct and indirect products

Traditional processLength of time measured in weeksCost prohibited the number of bids

Reverse auction—automated processInternet “open bid”—many suppliers take partJob is awarded quicklyPrice to GM significantly lower

Concepts and Characteristics of B2B EC

B2B EC definedTransaction conducted electronically between business over the networks

InternetExtranetsIntranetsPrivate networks (e.g., EDI)

Automated trading improves the process

Concepts and Characteristicsof B2B EC (cont.)

Market size and contentExpected to grow from $1.1 trillion in 2003 to $10 trillion by 2005Percentage of Internet-based B2B from 2.1% in 2000 to 10% in 2005

Private and public e-marketplacePrivate—one-to-many modePublic—many-to-many mode

How is B2B conducted?Directly between buyer and sellerVia an online intermediaryAlong the supply chainWith or without intermediaries

Types of transactionsSpot buying—determined by dynamic supply and demandStrategic sourcing—long term contracts

Figure 6-1B2B Supply Chain

Supply chain relationshipsInterrelated subprocesses and roles

Acquisition of materialsProcessing products and servicesMoving to distributorsPurchase by consumer

Traditional process managed through paper transactionsB2B applications offer competitive advantages for supply chain management (SCM)

Entities of B2B ECSelling company—marketing management perspectiveBuying company—procurement management perspectiveElectronic intermediaries—optional third party directory service provider (scope of service may be extended to order fulfillment) Trading platforms—pricing and negotiation protocol (auctions, reverse auctions)

Entities of B2B EC (cont.)Payment services—mechanism for transferring money to sellersLogistics providers—logistics to complete transaction (packaging, storage, delivery)Network platforms—Internet, VAN, intranet, extranetProtocols of communication—EDI or XMLBack-end integration—connecting to ERP systems, databases, functional applications

ProductCustomerSupplierProduct processTransportation

InventorySupply chainCompetitorSales and marketingSupply chain process and performance

Information processed in B2B

Electronic intermediaries in B2BConsumers and business may share intermediariesBusinesses may use different intermediaries with different suppliers

Benefits of B2B modelsEliminate paper-based systemsExpedite cycle timeReduce errorsIncrease employee productivityReduce costsIncrease customer service and partnership management

B2B Models

Company-centric modelsSell-side marketplace (one-to-many)Buy-side marketplace (many-to-one)

Many-to-many marketplaces—the exchange

Buyers and sellers meet to tradeTrading communitiesTrading exchangesExchanges

B2B Models (cont.)

Other B2B models and servicesFor the purpose of sellingFor the purpose of buyingValue chain integratorsValue chain service providersInformation brokers

Vertical vs. horizontal marketplacesVertical—one industry or industry sectionHorizontal—service or product used in several types of industries

B2B Models (cont.)

Virtual service industries in B2BTravel and tourism servicesReal estateElectronic paymentsOnline stock tradingOnline financingOther online services

Figure 6-2Sell-Side Marketplace Architecture

Sell-Side Marketplaces:One-to-Many

Virtual sellers—Bigboxx.com.hk of Hong Kong

B2B office supply retailer servicesLarge corporate clientsMedium corporate clientsSmall offices

Goal—sell products in various SE Asian countriesOffers more than 10,000 itemsUses more than 300 suppliers

Sell-Side Marketplaces:One-to-Many (cont.)

Virtual sellers—Bigboxx.com.hk of Hong Kong (cont.)

Company portal attractive, easy to useBrowse online catalogsUse search enginesPayments

Cash or check upon deliveryAutomatic paymentsCredit cardPurchasing card

Delivery Owns trucks and warehousesDelivery scheduled online

Same day (within an hour)Specifically scheduled time

Ordering system integrated with SAP-based back-office system

Value-added servicesTrack status of orderCheck stock availabilityPromotionsCustomized pricesGroup accounts and central approval—for businesses with multiple branchesStanding orders automatically activatedLarge number of reports and data available

Customer serviceGeneral Electric

20 million calls/year about appliancesReduced cost of each call from $5 to $0.20

Milacron, Inc.Site contains 55,000 products

Easy to useSecurely handles selection, purchase, application

Technical service—expanded to provide a higher level of service than previously available at the site

DellIntel

IBMCisco

Direct sales from catalogsConfiguration and customization

Efficient customization for direct salesBusiness customers

Customize productsReceive price quoteSubmit order

Successful cases

Direct sales from catalogsBenefits

Reduces costs (to buyers and sellers) and errors during the processSpeeds up order cycleAbility to customize productsOffer different prices to different customers

Direct sales from catalogs (cont.)Limitations

Channel conflicts with distribution systemsHigh cost when traditional EDI usedLarge number of business partners is needed to justify system

Selling Side: Auctions and Other Models

Forward auctions—quick disposal of itemsRevenue generationIncreased page viewsMember acquisition and retention—bidding transactions result in additional registered members

Selling from own site when:Large companies that conduct auctions frequently don’t benefit from using intermediariesE-marketplace already in use, cost of adding auction not too high

Selling Side:Auctions and Other Models (cont.)

Using intermediaries when:No resources requiredOwn and control auction informationFast time to market

Searching and reportingSearch and report all auction activitiesStandard reports availableAdditional analysis of complex information

Selling Side:Auctions and Other Models (cont.)

Billing and collectionAutomatic calculation of shipping weights and chargesPayment—encrypted credit card data

Billing information—easily downloaded into existing systems

Successful if:Sufficient number of loyal customersProducts well knownPrice not major purchasing criteria

Sell-Side Case:CISCO Connection Online (CCO)

Benefits—saves the company $363 million per year in:

Technical supportHuman resourcesSoftware distributionMarketing material

Cisco Connection Online (CCO) (cont.)

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

Benefits to CiscoReduced operating costs for order takingEnhanced technical support and customer serviceReduced technical support staff costReduced software distribution costsLead times reduced fro 4-10 days to 2-3 days

Benefits to customersQuick order configurationImmediate cost determinationCollaboration with Cisco staff

Sell-Side Intermediaries

Marshall Industries—(a subsidiary of AvnetMarshall) multinational distributor of electronic components known for its innovative uses of IT and the Web

Products and servicesMarshallNetMarshall on the Internet (portal)Strategic European InternetElectronic Design CenterPartnerNetNetSeminarEducation and News Portal

Sell-Side Intermediaries (cont.)

Marshall Industries—a subsidiary or AvnetMarshall (cont.)

Survival strategyContinuous improvement programs and innovationsTeam-based organization, flat hierarchy, decentralized decision makingProfit sharing compensation for salespeople

Marshall Industries—a subsidiary of AvnetMarshall (cont.)

Survival strategyCRM highly promotedWeb-based services create value between suppliers and customersEC initiatives supported by:

Changing internal organizationChanging internal procedures

Boeing’s PARTActs as an intermediary between the airlines and parts’ suppliersProvides a single point of online access through which airlines and parts’ providers can access the data neededGoal: provide its customers with one-stop shopping for online parts and maintenance information and ordering capability

Boeing’s PARTSpare 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 part and delivers

Debut of PART on the InternetEncourages customers to order parts electronically—cheap, easy, fast50% of customers using Internet within first year

Boeing’s PARTBenefits of PART online

Improved customer serviceSignificant operating savingsNew sales opportunitiesCustomer service online reduced

Phone calls (purchasing, order status etc.)Data entry

Boeing’s PARTPortable access to technical drawings/support

Boeing On Line Data (BOLD) provides availability to:

Engineering drawings ManualsCatalogsOther technical information

Portable Maintenance Aid (PMA)—solves maintenance problems

Boeing’s PARTBenefits to Boeing’s customers

Increased productivity—less time searching for informationReduced costs—delays at gate reduced because all information is availableIncreased revenues—faster service provides time savings

Buy Side: One-from-Many,E-Procurement

Purchasing agents (buyers)Direct purchasing

Use of material is scheduledNot a shelf item

Indirect purchasingMROsNonproduction materials

Inefficiencies in procurement management of indirect materials

Figure 6-3A Traditional Purchasing Process Flow

Source: ariba.com, February 2001.

Buy Side: One-from-Many,E-Procurement (cont.)

Innovative procurement managementInnovative purchasing as strategic approach to increase profit marginsWeb facilitation includes:

Electronic tenderingVolume purchasingAggregating supplier catalogs at buyer’s siteGroup purchasingOthers

Goals of procurement reengineeringIncrease purchasing agent productivityLower purchasing prices of itemsImprove information flow and managementMinimize maverick (unplanned) buyingImprove payment processStreamline purchasing process to make it:

SimpleFast

Goals of procurement reengineering (cont.)Reduce administrative processing cost per orderFind new suppliers and vendors to provide faster/cheaper goods and servicesIntegrate procurement process with budgetary control in an efficient and effective wayMinimize human errors in buying or shipping process

Figure 6-4Buy-Side B2BMarketplace Architecture

Direct vs. indirect sourcingTools to automate purchasing goods

Direct or mission critical80% of manufacturer’s expenditureLong-term relationship with vendor of known quality goodsTight integration with suppliers along supply chain

Indirect—use of public exchanges for indirect sourcing

Buy Side: Reverse Auctions

Pre-Internet Reverse auction processPrepare description of product to be producedAnnounce project via ads, mail, telephoneSend detailed information to interested vendorsVendors prepare proposalsBidders submit document proposalsProposals evaluatedProblems:

LawsExpensiveErrors

Buy Side: Reverse Auctions (cont.)

Web-based reverse auction processBuyers prepare bidding project informationBuyers post project on portalIdentify potential suppliersInvite suppliers to bidSuppliers download project informationSuppliers submit electronic bidReverse auction in real-time, or it can take a few daysBuyers evaluate and award contract

Buy Side: Reverse Auctions (cont.)

Web-based reverse auction processBenefits:

Electronic process is fasterAdministratively much less expensiveEnables location of cheapest possible products

Procurement Revolution at GE

TPN at GE Lighting DivisionPurchasing was inefficient—too many administrative transactions

Process for each requisition took 7 daysComplex and time-consumingCould only send out bids for 2 or 3 suppliers

Trading Process Network (TPN)—electronic bidsEntire process takes 7 days (for suppliers to bid)2 hours to send information to suppliersEvaluate and award bids same day

Procurement Revolution at GE (cont.)

Benefits to GEInvolvement in procurement process

Labor declined 30%Material costs declined 5%-20%--wider base of suppliers online

Redeployment60% of the staffSourcing department concentrates on strategic activities instead of paperwork, etc.

Benefits to GETime to identify suppliers, prepare a request for bid, negotiate a price, and award the contract

Was 18-23 days Now 9-11 days

Invoices automatically reconciled reflecting modificationsGE procurement departments share information about their best suppliers across the world

Benefits to buyersWorldwide supplier partnershipsCurrent business partners

Strengthen relationshipsStreamline sourcing process

Rapid distribution of informationTransmit electronic drawings to multiple suppliersDecrease sourcing cycle timeQuick receipt and comparison of pricing bids

Benefits to suppliersIncreased sales volumeExpanded market reach, finding new buyersLowered administration costs for sales and marketing activitiesShortened requisition cycle timeImproved sales staff productivityStreamlined bidding process

Deployment strategiesStart EC in one division and slowly go to all divisionsUse the site as public bidding marketplace to generate commission income to GE

Aggregating Catalogs

Aggregating suppliers’ catalogs: an internal marketplace

Maverick buying to save time leads to high pricesAggregating all approved suppliers’ catalogs in one place

Reduced number of suppliersBuyers at multiple corporate locations

Fewer and remote suppliersLarger quantity/lower costs

Group Purchasing

Group purchasing—orders from several buyers are aggregated

Internal aggregationEconomy of scaleReduced transaction processing cost

External aggregationAggregating demand onlinePutting together orders from multiple buyers to make large volumes/lower costs

Electronic Bartering

Electronic barteringExchange of goods or services without the use of moneyExchange a surplus for other needBartering exchange

Submit surplus to exchange for pointsPoints used to buy what company needs

Benefits:Faster than manuallyEasier to match

Collaborative Commerce (C-Commerce)

Web-based systems used between and among suppliers for:

CommunicationDesignPlanning Information sharingInformation discovery

Webcore construction goes online with its partners

Figure 6-6Suppliers Extranet: Hudson Dayton Case

Collaborative Commerce(C-Commerce) (cont.)

Reduce design cycle time by connecting suppliers: Adaptec, Inc.

Microchip manufacturer supplying electronic equipment makers

Outsources manufacturing tasksDelivery times exceeded their competitors

Solution to the problemExtranet and enterprise-level supply chain integrated softwareSignificantly reduced order-to-product delivery time

SuppliersDistributorsOverseas

Factories Customers

Reduce product development time by connecting suppliers: 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

Other examples of c-commerceTricon Restaurant International—global brand marketing managementRE/MAX—real estate franchiser improved communication and collaboration between independent ownersMarriott International—links corporations, franchising partners, suppliers, customersNygard of Canada—interorganizational collaboration

B2B Infrastructure

Server to host database and applicationsSoftware for executing sell-side (catalogs)Software for conducting auctions and reverse auctionsSoftware for e-procurement (buy-side)

B2B Infrastructure (cont.)

Software for CRMSecurity hardware and softwareSoftware for building a storefrontTelecommunications networks and protocols

Extranet and EDI

Secure interorganizational networksTraditional EDI limits accessibility of small companiesInternet-based EDI offers wide accessibility to companies around the world

Integration

ERP softwareCustomer, supplier, and other databasesLegacy systemsCatalog (product) informationInventory systemsSales statisticsDecision support systems (DSS) and SCM applications

Integration (cont.)

Integration with existing information systems

Issues in integrating with back-end information systems:

Intranet-based work flowDatabase management systems (DMBS)Application packagesERPBack-end sell-side integration works for sellers but not buyers and vice versa

Integration (cont.)

Integration with business partnersEasy integration with one company-centric sideNot easy to integrate for many buyers or sellersNeed buyer owned shopping cart that can interface with back-end information systems

B2B Agents

Figure 6-7

Intelligent Agent-Based Commerce

Source: J. K. Lee and W. Lee (1997).

Implementation Issues

Justification and prioritizationMust conduct cost benefit analysis of proposed projectsInclude organizational impacts

Possible channel conflictsDealing with resistance to change due to processes reengineering

Cost-benefit analysis related to:Finding B2B opportunitiesPrioritizing potential initiatives

Implementation Issues (cont.)

Vendor selectionPrimary vendor uses its software and procedures, adds partners as neededIntegrator mixes and matches existing products and vendors to create “best of the breed”

Affiliate programsReferral programUseful for B2B intermediaries

Implementation Issues (cont.)

Implementing e-procurementFit e-procurement into EC strategyReview and change procurement process itselfIf ERP or SCM is in place—integrate e-procurement, If not in place—BPR before implementationCoordinate buyer’s information system with seller’s

Managerial Issues

B2B marketing—sell-side marketplaces require advertisement and incentivesWhich models to use and when—need for implementation strategies and prioritizationPurchase process reengineering (BPR)

Establish buy-side marketplace on its server if volume is big enough to attract major vendorsJoin third-party intermediary-oriented marketplace if volume is small

Managerial Issues (cont.)

Integration—trading in e-marketplaces is interrelated with logistics

Particularly true in many-to-many exchangesCompany-centric marketplaces must integrate:

Logistics Other support services

Business ethicsAccessing unauthorized areas in the tracing system should not be allowedPrivacy of partners should be protected technically and legally

Auctions—both forward and reverseBenefits are substantialImplementation is relatively simpleConsiderable flexibility in implementation

E-procurement—critical success factorsNeed to cut down number of routine tasksReduce overall procurement cycle using appropriate information technologies

Workflow GroupwareERP softwareB2B models

Chapter 6 : Business to Business Electronic Commerce ( B2B EC )

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