Chapter Five: B2B E-Commerce 5-1 ONLINE FILE W5.1 Application Case BUYING FROM VIRTUAL SELLER BIGBOXX.COM bigboXX.com (bigboxx.com), based in Hong Kong, is a B2B office supply retailer. It has no physical stores and sells products through its online catalog; thus, bigboXX.com is an online intermediary. The company has three types of cus- tomers: large corporate clients, medium-sized corporate clients, and small office/home offices (SOHOs). It offers more than 8,000 items from 300 suppliers. bigboXX.com’s goal is to sell its products in various countries in Southeast Asia. The company’s portal is attractive and easy to use and includes tutorials that instruct users on how to use the Web site. Once registered, a user can start shopping using the online shopping cart. Users can look for items by browsing through the online catalog or by searching the site with a search engine. The ordering system is integrated with an SAP-based back-office system. Users can pay by cash or by check (upon delivery), via automatic bank drafts, by credit card, or by purchasing card. Soon users will be able to pay through Internet-based direct debit, by electronic bill presentation and payment, or by Internet banking. Using its own trucks and warehouses, deliveries sched- uled online are made within 24 hours. bigboXX.com provides numerous value-added services for customers. Among these are the ability to check item avail- ability in real time; the ability to track the status of each item in an order; promotions and suggested items based on customers’ user profiles; customized prices for every product, for every customer; control and central-approval features; automatic activation at desired time intervals of standing orders for repeat purchasing; and a large number of Excel reports and data, including comparative management reports. bigboXX.com began operations in spring 2000. By the end of 2006, it had over 8,500 registered customers. bigoXX.com has expanded its services over time. Today, it has a print center for digital and offset printing; a premium center, which sources gift items for promotions; a records management service, which provides secure document storage solutions; and an office relocation service, which handles a full-range of relocation arrangements for offices. In 2008, bigboXX.com and Office Depot formed a strate- gic alliance to provide office products and services to corpo- rate customers in Hong Kong, a key market for many global companies. The relationship between Office Depot and bigboXX.com will provide a complete procurement solution for customers in Hong Kong. Questions 1. Enter bigboxx.com and staples.com and compare their B2B offerings and purchase processes. (Take the tutor- ial at bigboxx.com.) What support services are provided? 2. Someday customers may become accustomed to buying office supplies online. Then, they may try to buy directly from the manufacturers. Will bigboXX.com or staples.com then be disintermediated? Why or why not? REFERENCES FOR ONLINE FILE W5.1 bigboxx.com (accessed April 2009). Reuters. “Office Depot Announces Strategic Alliance with bigboXX.com to Serve International Accounts in Hong Kong.” June 5, 2008. reuters.com/article/ pressRelease/ idUS131056+05-Jun-2008+BW20080605 (accessed April 2009).
Transcript
Chapter Five: B2B E-Commerce 5-1
ONLINE FILE W5.1Application Case
BUYING FROM VIRTUAL SELLER BIGBOXX.COMbigboXX.com (bigboxx.com), based in Hong Kong, is a B2Boffice supply retailer. It has no physical stores and sellsproducts through its online catalog; thus, bigboXX.com is anonline intermediary. The company has three types of cus-tomers: large corporate clients, medium-sized corporateclients, and small office/home offices (SOHOs). It offers morethan 8,000 items from 300 suppliers. bigboXX.com’s goal isto sell its products in various countries in Southeast Asia.
The company’s portal is attractive and easy to use andincludes tutorials that instruct users on how to use the Website. Once registered, a user can start shopping using theonline shopping cart. Users can look for items by browsingthrough the online catalog or by searching the site with asearch engine. The ordering system is integrated with anSAP-based back-office system.
Users can pay by cash or by check (upon delivery), viaautomatic bank drafts, by credit card, or by purchasing card.Soon users will be able to pay through Internet-based directdebit, by electronic bill presentation and payment, or byInternet banking.
Using its own trucks and warehouses, deliveries sched-uled online are made within 24 hours.
bigboXX.com provides numerous value-added services forcustomers. Among these are the ability to check item avail-ability in real time; the ability to track the status of eachitem in an order; promotions and suggested items based oncustomers’ user profiles; customized prices for every product,for every customer; control and central-approval features;
automatic activation at desired time intervals of standingorders for repeat purchasing; and a large number of Excelreports and data, including comparative management reports.
bigboXX.com began operations in spring 2000. By theend of 2006, it had over 8,500 registered customers.
bigoXX.com has expanded its services over time. Today, ithas a print center for digital and offset printing; a premiumcenter, which sources gift items for promotions; a recordsmanagement service, which provides secure document storagesolutions; and an office relocation service, which handles afull-range of relocation arrangements for offices.
In 2008, bigboXX.com and Office Depot formed a strate-gic alliance to provide office products and services to corpo-rate customers in Hong Kong, a key market for many globalcompanies. The relationship between Office Depot andbigboXX.com will provide a complete procurement solution forcustomers in Hong Kong.
Questions1. Enter bigboxx.com and staples.com and compare their
B2B offerings and purchase processes. (Take the tutor-ial at bigboxx.com.) What support services are provided?
2. Someday customers may become accustomed to buyingoffice supplies online. Then, they may try to buydirectly from the manufacturers. Will bigboXX.com orstaples.com then be disintermediated? Why or why not?
REFERENCES FOR ONLINE FILE W5.1bigboxx.com (accessed April 2009).Reuters. “Office Depot Announces Strategic Alliance
with bigboXX.com to Serve International Accounts in
Hong Kong.” June 5, 2008. reuters.com/article/pressRelease/ idUS131056+05-Jun-2008+BW20080605(accessed April 2009).
5-2 Part 3: Business-to-Business E-Commerce
Online File W5.2 Essentials of Extranets
An extranet uses the TCP/IP protocol to link intranets in different locations (as shown inExhibit W5.2.1). Extranet transmissions are usually conducted over the Internet, which offerslittle privacy or transmission security. Therefore, it is necessary to add security features. Thisis done by creating tunnels of secured data flows, using cryptography and authorization algo-rithms, to provide secure transport of private communications. An Internet with tunnelingtechnology is known as a virtual private network (VPN) (see en.wikipedia.org/wiki/Virtual_private_network).
Extranets provide secured connectivity between a corporation’s intranets and theintranets of its business partners, materials suppliers, financial services, government, andcustomers. Access to an extranet is usually limited by agreements of the collaborating parties,is strictly controlled, and is available only to authorized personnel using a secure passwordand login. The protected environment of an extranet allows partners to collaborate and shareinformation and to perform these activities securely.
Because an extranet allows connectivity between businesses through the Internet, it isan open and flexible platform suitable for B2B. To increase security, many companies replicatethe portions of their databases that they are willing to share with their business partners andseparate them physically from their regular intranets. However, even separated data need tobe secured. (See Chapter 10 for more on EC network security.)
The benefits of extranets fall into five categories:
1. Enhanced communications. The extranet enables improved internal communications;improved business partnership channels; effective marketing, sales, and customer support; and facilitated collabora-tive activities support.
2. Productivity enhancements. The extranet enables just-in-time information delivery, reduction of information overload,collaboration between work groups, and training on demand.
3. Business enhancements. The extranet enables faster time-to-market, the potential for simultaneous engineering andcollaboration, lower design and production costs, improved client relationships, and creation of new businessopportunities.
extranetA network that uses avirtual private networkto link intranets in dif-ferent locations over theInternet; an “extendedintranet.”
virtual private network(VPN)A network that createstunnels of secured dataflows, using cryptographyand authorization algo-rithms, to provide securetransport of privatecommunications overthe public Internet.
OtherBusinessPartners,
Government
My SuppliersA, B, C . . .
Intranets
Intranets
Intranet
IntranetInternet
with VPN
Internetwith VPN
Internetwith VPN
My Customers
B2B
My Company
My Field Employees
EXHIBIT W5.2.1 The Structure of an Extranet
(continued)
Chapter Five: B2B E-Commerce 5-3
Online File W5.2 (continued)
4. Cost reductions. The extranet results in fewer errors, improved comparison shopping, reduced travel and meetingtime and cost, reduced administrative and operational costs, and elimination of paper publishing costs.
5. Information delivery. The extranet enables low-cost publishing, leveraging of legacy systems, standard delivery systems,ease of maintenance and implementation, and elimination of paper-based publishing and mailing costs.
Additional advantages of extranets include ready access to information, ease of use, freedom of choice, moderatesetup costs, simplified workflows, lower training costs, flexibility, improved ability to build customer loyalty, andbetter group dynamics. Disadvantages include difficulty in justifying the investment (measuring benefits and costs),high user expectations, and drain on resources. Finally, Chow (2004) describes success factors of using extranets in e-supply chains.
Extranet 2 Virtual private network (VPN) 2
KEY TERMS
REFERENCES FOR ONLINE FILE W5.2All Business. “The Benefits of Extranets.” 2009. allbusiness.
com/technology/computer-networking/1283-1.html(accessed April 2009).
Chow, W. S. “An Exploratory Study of the Success Factorsfor Extranet Adoption in E-Supply Chain.” Journal ofGlobal Information Management ( January–March 2004).
Online File W5.3 From Traditional to Internet-Based EDI
The vast majority of B2B transactions are supported by EDI, XML, and extranets. Here we describe EDI and its transition tothe Internet platform. Extranets were covered in Online File W5.2.
Traditional EDIEDI is a communication standard that enables the electronic transfer of routine documents, such as purchasing orders, betweenbusiness partners. It formats these documents according to an agreed-upon structure. An EDI implementation is a process inwhich two or more organizations determine how to work together more effectively through the use of EDI. For other organiza-tions, it is an internal decision spurred by the desire for competitive advantage. EDI is basically a computer-to-computer mes-saging system with a minimum of human intervention. For a comparison of EDI versus no EDI, see Exhibit W5.3.1.
EDI often serves as a catalyst and a stimulus to improve the business processes that flow between organizations. Itreduces costs, delays, and errors inherent in a manual document-delivery system:
◗ Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions. Theseinclude purchase orders, invoices, credit approvals, shipping notices, confirmations, and so on.
◗ Data-formatting standards. Because EDI messages are repetitive, it makes sense to use formatting (coding) standards.Standards can shorten the length of the messages and eliminate data entry errors, because data entry occurs only once.EDI deals with standard transactions, whereas e-mail is more open. EDI uses a special standard language and is secure,
(continued)
5-4 Part 3: Business-to-Business E-Commerce
Online File W5.3 (continued)
whereas e-mail is not. When a user enters data into the EDI system, the data are automatically converted to EDI language.If there are missing or incorrect data, the EDI converter offers assistance. EDI fosters collaborative relationships andstrategic partnerships. In the United States and Canada, data are formatted according to the ANSI X.12 standardor the UCS code. An international standard developed by the United Nations is called EDIFACT (for a tutorial seegxs.com/pdfs/Tutorial/Tutor_EDIFACT_GXS.pdf).
◗ EDI translators. An EDI translator automatically translates data. The software organizes information into a standard format.
EXHIBIT W5.3.1 Purchase Order Fulfillment withand without EDI
(continued)
Chapter Five: B2B E-Commerce 5-5
Online File W5.3 (continued)
EDI has been around for about 30 years in the non-Internet environment. To distinguish it from Internet-based EDI,we call EDI on the non-Internet platform traditional EDI.
How Does EDI Work?The following example illustrates how EDI works in a hospital. Information flows from the hospital’s information systems intoan EDI station that includes a PC and an EDI translator. From there, the information moves, using a modem if necessary, to aVAN. The VAN transfers the formatted information to a vendor(s), where an EDI translator converts it to a desired format.
How EDI Cuts Costs of Ordering SuppliesAn average hospital generates about 15,000 purchase orders each year, at a processing cost of about $70 per order. TheHealth Industry Business Communication Council estimates that EDI can reduce this cost to $4 per order—generating yearlysavings of $840,000 per hospital. The required investment ranges between $8,000 and $15,000, which includes purchase ofa PC with an EDI translator, a modem, and a link to the mainframe-based information system. The hospital can have two orthree ordering points. These are connected to a value-added network (VAN), which connects the hospital to its suppliers(see Exhibit W5.3.2). The system also can connect to other hospitals or to centralized joint purchasing agencies.
Applications of Traditional EDITraditional EDI has changed the business landscape, triggering new definitions of entire industries. It is used extensively bylarge corporations, sometimes in a global network, such as the one operated by General Electric Information System (whichhas over 100,000 corporate users). Well-known retailers such as Home Depot and Wal-Mart would operate very differentlywithout EDI, because it is an integral and essential element of their business strategies. Thousands of global manufacturers,including Procter & Gamble, Levi Strauss, Toyota, and Unilever, have used EDI to redefine relationships with their customersthrough such practices as quick-response retailing and just-in-time (JIT) manufacturing. These highly visible, high-impactapplications of EDI by large companies have been extremely successful. The benefits of EDI are listed next.
Benefits of EDI
◗ EDI enables companies to send and receive large amounts of routine transaction information quickly around the globe.◗ Computer-to-computer data transfer reduces the number of errors.◗ Information can flow among several trading partners consistently and freely.
HospitalInformation
System
Pharmacy:PC/EDI
Translator
Dietary:PC/EDI
Translator
PC/EDIModem VAN
MaterialManagement:
PC/EDITranslator
Hospitals
PC to Mainframe Links
Telephone Lines
PC/EDI Translator
MaterialsSupplier’sSystem
Mainframe
PC/EDI Translator
DietarySupplier’sSystem
Other Hospitals’PC/EDITranslators
PC/EDI Translator
PharmaceuticalSupplier’sSystem
Mainframe
Mainframe
EXHIBIT W5.3.2 How EDI Cuts the Cost of Ordering Supplies
(continued)
5-6 Part 3: Business-to-Business E-Commerce
Online File W5.3 (continued)
◗ Companies can access partners’ databases to retrieve and store standard transactions.◗ EDI fosters true (and strategic) partnership relationships because it involves a commitment to a long-term investment
and the refinement of the system over time.◗ EDI creates a complete paperless TPS (transaction processing system) environment, saving money and increasing
efficiency.◗ Payment collection can be shortened by several weeks.◗ Data may be entered offline, in batch mode, without tying up ports to the mainframe.◗ When an EDI document is received, the data may be used immediately.◗ Sales information is delivered to manufacturers, shippers, and warehouses almost in real time.◗ EDI can save companies a considerable amount of money.
Limitations of Traditional EDIHowever, despite the tremendous impact of traditional EDI among industry leaders, the set of adopters represented only a smallfraction of potential EDI users. In the United States, where several million businesses participate in commerce every day, fewerthan 100,000 companies have adopted traditional EDI. Furthermore, most of these companies have had only a small number oftheir business partners on EDI, mainly due to its high cost. Therefore, in reality, few businesses have benefited from EDI. Themajor factors that held back more universal implementation of traditional EDI include the following:
◗ Significant initial investment is needed, and ongoing operating costs are high.◗ Business processes must be restructured to fit EDI requirements.◗ A long startup period is needed.◗ EDI requires use of expensive private VANs.◗ EDI has a high operating cost.◗ Multiple EDI standards exist, so one company may have to use several standards in order to communicate with
different business partners.◗ The system is difficult to use.◗ A converter is required to translate business transactions to EDI code.◗ The system is inflexible; it is difficult to make quick changes, such as adding business partners.
These factors suggest that traditional EDI—relying on formal transaction sets, translation software, and VANs—is notsuitable as a long-term solution for most corporations. Therefore, a better infrastructure was needed; Internet-based EDI issuch an infrastructure. For details, see Harris and Chen (2006).
Internet-Based EDIInternet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the case and review the various types ofWeb-based EDI.
Why Internet-Based EDI?When considered as a channel for EDI, the Internet appears to be the most feasible alternative for putting online B2Btrading within reach of virtually any organization, large or small. Firms should use Internet-based EDI for several reasons:
◗ The Internet is a publicly accessible network with few geographical constraints. Its most important attribute—its large-scale connectivity (without the need for any special proprietary networking architecture)—is a seedbed for growth of avast range of business applications.
◗ The Internet’s global network connections offer the potential to reach the widest possible number of trading partners ofany viable alternative currently available.
◗ Using the Internet instead of a VAN can cut communication costs by over 50 percent.◗ Using the Internet to exchange EDI transactions is consistent with the growing interest in delivering an ever-increasing
variety of products and services electronically, particularly via the Web.◗ Internet-based EDI can complement or replace many current EDI applications.
(continued)
Chapter Five: B2B E-Commerce 5-7
Online File W5.3 (continued)
◗ Internet tools such as browsers and search engines are very user-friendly, and most employees today know how to use them.
◗ Internet-based EDI has several functionalities not provided by traditional EDI, such as collaboration, workflow, and searchengine capabilities.
Types of Internet-Based EDIThe Internet can support EDI in a variety of ways:
◗ Internet e-mail can be used to transport EDI messages in place of a VAN. To this end, standards for encapsulating themessages within Secure Internet Mail Extension (S/MIME) have been established.
◗ A company can create an extranet that enables its trading partners to enter information into a Web form, the fields ofwhich correspond to the fields in an EDI message or document.
◗ Companies can use a Web-based EDI hosting service in much the same way that companies rely on third parties to hosttheir EC sites. Sun Java System Web Server is an example of the type of Web-based EDI software that enables a company toprovide its own EDI services over the Internet. Harbinger Express is an example of a company that provides third-partyhosting services.
◗ Internet-based EDI is frequently XML based to ease integration among business partners.
The Prospects of Internet-Based EDICompanies that used traditional EDI in the past have had a positive response to Internet-based EDI. With traditional EDI,companies have to pay for network transport, translation, and routing of EDI messages into their legacy processing systems.The Internet simply serves as a cheaper alternative transport mechanism. For a discussion, see Meadors (2005). The combina-tion of the Web, XML, and Java makes EDI worthwhile even for small, infrequent transactions. Whereas EDI is not interactive,the Web and Java were designed specifically for interactivity as well as ease of use.
The following examples demonstrate the benefits of Internet-based EDI:
◗ Compucom Systems was averaging 5,000 transactions per month with traditional EDI. In just a short time after thetransition to Web-based EDI, the company was able to average 35,000 transactions. The system helped the company togrow rapidly.
◗ Tradelink of Hong Kong was successful in recruiting only several hundred of the potential 70,000 companies to a traditionalEDI that communicated with government agencies regarding export/import transactions. In 2001, Tradelink’s Internet-basedsystem had thousands of companies registered, and hundreds were being added monthly.
◗ Atkins Carlyle Corp., which buys from 6,000 suppliers and has 12,000 customers in Australia, is a wholesaler of indus-trial, electrical, and automotive parts. The large suppliers were using three different EDI platforms. By moving to anInternet-based EDI, the company is able to collaborate with many more business partners, reducing transaction costs byabout $2 per message.
◗ Procter & Gamble replaced a traditional EDI system that had 4,000 business partners with an Internet-based system thathas tens of thousands of suppliers.
Note that many companies no longer refer to their collaborative systems as EDI. However, the properties of EDI areembedded into new e-commerce initiatives such as collaborative commerce and electronic exchanges.
REFERENCES FOR ONLINE FILE W5.3Harris, A. L., and C. Chen. “Traditional and Internet
EDI Adoption Barriers.” In M. Khosrow-Pour (Ed.).Encyclopedia of E-Commerce, E-Government, and MobileCommerce. Hershey, PA: Idea Group Reference, 2006.
Meadors, K. “Secure Electronic Data Interchange over theInternet.” IEEEXplore (May–June 2005).
5-8 Part 3: Business-to-Business E-Commerce
ONLINE FILE W5.4Application Case
CISCO SYSTEM’S CONNECTION ONLINECisco began providing electronic support in 1991 usingvalue-added networks (VANs). The first applications offeredwere software downloads, defects diagnosis, and technicaladvice. In spring 1994, Cisco moved its system to the Weband named it Cisco Connection Online (CCO). By 2004,Cisco’s customers and reseller partners were logging ontoCisco’s Web site over 2 million times a month to receivetechnical assistance, place and check orders, or downloadsoftware. The online service has been so well received thatnearly 85 percent of all customer service inquiries and95 percent of software updates are delivered online. Theservice is delivered globally in 16 languages. The CCO isconsidered a model for B2B success, and several bookshave been written about it.
Online Ordering by CustomersVirtually all of Cisco’s products are made-to-order. BeforeCCO, ordering a product was a lengthy, complicated, anderror-prone process because it was done by fax or by “snailmail.” Cisco began deploying Web-based commerce tools inJuly 1995, and within a year its Internet Product Centerallowed users to configure and purchase any Cisco productover the Web. Today, a business customer’s engineer can sitdown at a PC, configure a product, and find out immediatelyif there are any errors in the configuration (some feedback isgiven by intelligent agents).
By providing online pricing and configuration tools tocustomers, 99 percent of orders are now placed throughCCO, saving time for both Cisco and its customers. In thefirst 5 months of online ordering operations in 1996, Ciscobooked over $100 million in online sales. This figure grewto $4 billion in 1998 to over $8 billion in 2002 and toabout $12 billion in 2005 (Cisco Annual Report 2005).(Note: Data for Cisco’s online and offline sales are notseparated after 2005.)
Tracking Order StatusEach month Cisco used to receive over 150,000 order-statusinquiries along the lines of “When will my order be ready?”“How should the order be classified for customs?” “Is theproduct eligible for NAFTA agreement?” “What export controlissues apply?” Today, Cisco provides self-tracking and FAQtools so that customers can find the answers to many of theirquestions by themselves. In addition, the company’s primarydomestic and international freight forwarders update Cisco’sdatabase electronically about the status of each shipment. CCOcan record the shipping date, the method of shipment, and thecurrent location of each product. All new information is made
available to customers immediately. As soon as an order ships,Cisco notifies the customer via e-mail.
BenefitsCisco reaps many benefits from the CCO system. The mostimportant benefits include the following:
◗ Reduced operating costs for order taking. By takingits order process online in 1998, Cisco has saved$363 million per year, or approximately 17.5 percentof its total operating costs. This is due primarily toincreased productivity of the employees who take andprocess orders.
◗ Improved quality. The system facilitates the Six Sigmamission of Cisco.
◗ Enhanced technical support and customer service. Withmore than 85 percent of its technical support and customerservice calls handled online, Cisco’s technical support pro-ductivity has increased by 250 percent per year.
◗ Reduced technical support staff cost. Online technicalsupport has reduced technical support staff costs byroughly $125 million each year.
◗ Reduced software distribution costs. Customers downloadnew software releases directly from Cisco’s site, saving thecompany $180 million in distribution, packaging, and dupli-cating costs each year. Having product and pricing informa-tion on the Web and Web-based CD-ROMs saves Cisco anadditional $50 million annually in printing and distributingcatalogs and marketing materials to customers.
◗ Faster service. Lead times were reduced from 4 to 10 daysto 2 to 3 days.
The CCO system also benefits customers. Cisco customerscan configure orders more quickly, immediately determinecosts, and collaborate much more rapidly and effectively withCisco’s staff. Also, customer service and technical support arefaster.
In 2006, Cisco moved to selling its hardware (routersand switches and VoIP) and the software that powers themseparately. This unbundling gives customers more flexibility(see Hoover 2006).
Questions1. List the capabilities of the Cisco Online system.
Hoover, J. N. “The Cisco Premium.” InformationWeek,July 31–August 7, 2006.
Chapter Five: B2B E-Commerce 5-9
ONLINE FILE W5.5Application Case
BOEING’S PARTS MARKETPLACEBoeing (boeing.com) is the world’s largest maker of airplanesfor commercial and military customers. It also plays the roleof intermediary in supplying replacement and maintenanceparts to airlines. Unlike other online B2B intermediaries,revenue from its intermediary activities may be a minorconcern to Boeing, which makes most of its revenue fromselling airplanes. The major goal of Boeing’s intermediaryparts market, called PART (Part Analysis and RequirementTracking), is supporting customers’ maintenance needs as acustomer service.
The objective of PART is to link airlines that need main-tenance parts with suppliers who are producing the parts forBoeing aircraft (see boeing.com/commercial/spares/part_page.html). Boeing’s online strategy is to provide a singlepoint of online access through which airlines (the buyers ofBoeing’s aircraft) and the maintenance and parts providers(Boeing’s suppliers) can access data about the parts theyneed. These data might come from the airframe builder, thecomponent supplier, the engine manufacturer, or the airlineitself. Thus, Boeing is acting as an intermediary between theairlines and the parts suppliers. With data from 300 key sup-pliers of Boeing’s airplane parts, Boeing’s goal is to provideits customers with one-stop shopping for online maintenanceinformation and ordering.
The Spare Parts Business UsingTraditional EDIOrdering spare parts had been a multistep process for manyof Boeing’s customers. For example, an airline’s mechanicinformed the purchasing department of his company that aspecific part was needed; the purchasing departmentapproved the purchase order and sent it to Boeing by phoneor fax. The mechanic did not need to know who producedthe part, because the aircraft was purchased from Boeing asone body. However, Boeing had to find out who producedthe part and then ask the producer to deliver the part to thecustomer (unless Boeing happened to keep an inventory ofthat part).
The largest airlines began to streamline the orderingprocess about 20 years ago. Because of the volume andregularity of their orders, they established EDI connectionswith Boeing over VANs. Not all airlines were quick to followsuit, however. It took until 1992 to induce 10 percent ofthe largest customers, representing 60 percent of the vol-ume, to order through EDI. The numbers did not changemuch until 1996 due to the cost and complexity of VAN-based EDI.
Debut of PART on the InternetBoeing viewed the Internet as an opportunity to encour-age more of its customers to order parts electronically.With the initial investment now limited to a standard PCand basic Internet access, even its smallest customerscan now participate in PART. Because of its interactive
capabilities, many customer service functions that werehandled over the telephone are now handled over theInternet.
In November 1996, Boeing introduced its PART pageon the Internet, giving its customers around the world theability to check parts availability and pricing, order parts,and track order status, all online. Less than a year later,about 50 percent of Boeing’s customers used PART for partsorders and customer service inquiries. In its first year ofoperation, the Boeing PART portal handled over half amillion inquiries and transactions from customers aroundthe world. Boeing’s spare parts business processed about20 percent more shipments per month in 1997 than it didin 1996 with the same number of data entry people. Inaddition, as many as 600 phone calls a day to customerservice staff were eliminated because customers had accessto information about pricing, availability, and order statusonline. The use of PART online resulted in fewer partsbeing returned due to administrative errors. Furthermore,the service may encourage airlines to buy Boeing aircraftthe next time they make an aircraft purchase. (For a demoof PART, visit boeing.com.)
As a result of PART’s success, Boeing started a comple-mentary EC initiative called Boeing OnLine Data (BOLD),which enables mechanics and technicians at the airport toaccess the technical manuals they need for repairs. Thesemanuals are now available in digital form, and mechanicsand technicians can access them via wireline or wirelessdevices. In May 2000, Boeing also launched a new e-businesssite for airline customers based on PART and BOLD.
As of 2009, Boeing’s PART Web page features up-to-date parts information, including availability, price, andwhether a part is interchangeable with another part.Orders are acknowledged and processed in seconds. Orderscan be placed or revised on the site in real time. Multipleorders can be analyzed in order to simplify the procure-ment process. Security safeguards allow specification ofthe level of personnel authorized to place orders.Customers can also order as many as 25 items at a time;print a copy of the invoice directly from the PART page;automatically request a quote for parts that are notpriced; and obtain customs invoice/packing sheets forinternational shipping.
Questions1. What motivated Boeing to create PART?
2. What motivated the move from EDI to the Internet?
3. List and briefly discuss the benefits of PART to Boeing.
4. List and briefly discuss the benefits of PART toBoeing’s customers.
5-10 Part 3: Business-to-Business E-Commerce
REFERENCES FOR ONLINE FILE W5.5“Boeing Launches New E-Business Web Site.” Aerotech
News and Review—Journal of Aerospace and DefenseIndustry News, May 12, 2000.
Boeing. “Boeing Part Page: Fast, Easy Access to the PartYou Want and Need.” 2009. boeing.com/commercial/aviationservices/brochures/Boeing_Part_Page.pdf(accessed April 2009).
Online File W5.6 Implementing E-Procurement
E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance tochange is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at areasonable cost. For details, see en.wikipedia.org/wiki/E-procurement.
MROs often are the initial target for e-procurement. However, improvements can be made in the purchasing of directmaterials as well. All existing manual processes of requisition creation, requests for quotation, invitation to tender, purchaseorder issuance, receiving goods, and making payments can be streamlined and automated. However, to most effectivelyimplement such automated support, the people involved in procurement must collaborate with the suppliers along the supplychain, as described in Chapter 6.
Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part is implement-ing it. The components of e-procurement systems are shown in Exhibit W5.6.1. For a model that simplifies the procurementprocess by performing tasks electronically, see Podlogar (2006).
(continued)
EXHIBIT W5.6.1 Potential E-Procurement ComponentsModule ComponentsCatalog Management Module• Facilitates the creation of products, subassemblies, • Catalog manager
and components in a hierarchical manner. • Catalog exchanger• AVL (approved vendor list) editor
Collaborative Planning Module• Supports collaborative planning between buyers • Request for quote (RFQ)
and suppliers. • Request for proposal (RFP)• Demand forecaster• Contract manager• Inventory manager• Information flow controller• Real-time integration to project management,
change management, and financials• Management of compliance with quality and
safety standardsOnline Purchase Module• Supports both systematic and spot procurement • Purchase via contracts
for direct and indirect materials and for • Purchase from catalogcontracts (for both goods and services). • Reverse auction service for direct/indirect
materials• Reverse auction service for contracts• Auction service
Chapter Five: B2B E-Commerce 5-11
Online File W5.6 (continued)
The following are some of the major implementation issues that companies must consider when planning e-procurementinitiatives:
◗ Fitting e-procurement into the company’s EC strategy. For example, suppose the strategy is outsourcing. In this case, e-procurement can be done in an exchange or the customer can buy at the sellers’ Web sites.
◗ Reviewing and changing the procurement process itself. E-procurement may affect the number of purchasing agents,where they are located, and how purchases are approved. The degree of purchasing centralization also may be affected.
◗ Providing interfaces between e-procurement and integrated enterprisewide information systems, such as ERP or supplychain management. If the company does not have such systems, it may be necessary to do some restructuring before movingto e-procurement.
◗ Coordinating the buyer’s information system with that of the sellers. Sellers have many potential buyers. For thisreason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an integration-oriented procurement system for its buyers. The SKF information system is designed to make it easier for the procurementsystems of others (notably the distributors in other countries) that buy the company’s bearings and seals to interface withthe SKF system. The SKF system allows distributors and large buyers to gain real-time technical information on theproducts, as well as details on product availability, delivery times, and commercial terms and conditions.
◗ Consolidating the number of regular suppliers and integrating with their information systems and, if possible, withtheir business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolvedand will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the companyto get a quantity discount. Collaboration with each supplier also will be enhanced.
(continued)
Module ComponentsPurchase-Order Handling Module• Enables buyers to place purchase orders via on/off • Purchase order manager
Information Service Module• Provides a unified information and message service • Message/task center
that allows users to receive/send e-mails and • Status of procurement operationsview status of procurement activities. • Customized exceptional alerts
• Smart search engine• Online negotiation/discussion service
System Administration Module• Provides tools that enable the company to control • Company master data organizer
procurement activities. • Product group builder• Workflow designer• Authorization matrix• Look and feel designer• User/department profile organizer
Sources: Compiled from e-jing.net and oracle.com (both accessed January 2009).
5-12 Part 3: Business-to-Business E-Commerce
Online File W5.6 (continued)
E-SourcingWhen implementing e-procurement, companies also should evaluate e-sourcing, the processesand tools that electronically enable any activity in the procurement process, such as quotation/tender requests and responses, e-auctions, online negotiations, and spending analyses (seeariba.com/solutions/sourcing_enterprise.cfm and Johnson and Klassen 2005). E-Sourcing is theautomation of strategic sourcing.
Strategic sourcing is the process of identifying opportunities, evaluating potential sources,negotiating contracts, and managing supplier relationships to achieve corporate goals, such ascost reductions and increased quality and service as well as reductions in sourcing cycle times.E-sourcing is about eliminating unnecessary costs (i.e., waste and inefficiency) from thesupply chain, thus providing for competitive advantage (Minihan 2009).
Strategic sourcing requires a holistic process that automates the entire sourcing process,including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order execution. The promise ofstrategic sourcing is in reducing total acquisition costs while increasing value. A fundamental shortcoming of sourcingtools today is their inability to allow the creation of complex RFQs that allow for a variety of bid structures that exploitcomplementarities and economies of scale in suppliers’ cost structures.
E-sourcing attempts to improve strategic sourcing by making it more effective and efficient. For example, MoaiTechnologies (moai.com) provides the following e-sourcing solutions:
◗ Just-in-time sourcing (JITS). Moai’s JITS integrates strategic consulting services with licensed software products. The softwaredirects customers through the e-sourcing process, including negotiating with vendors and securing reliable suppliers, therebylowering sourcing costs. According to Moai (2006), CompleteSource provides customized low-cost solutions at a flat fee. Thosewho are ready to take complete control of their sourcing process will benefit most from:◗ High ROI—fixed subscription cost with huge savings◗ Maximum customization—can be installed into unique workflows, applications, and processes◗ Maximum control—“Behind the firewall” solution provides flexibility and control in administering, scheduling, branding,
and process integration◗ Strategic consulting services. RapidSource, Moai’s strategic consulting program, promotes testing and validation of
e-sourcing to those new to the concept. With this guidance, users are guaranteed a return on investment in the program.◗ Hosted sourcing software. Delays, IT complexities, and costs associated with in-house deployments are eliminated with
Moai’s hosted services.
e-sourcingThe process and tools thatelectronically enable anyactivity in the sourcingprocess, such asquotation/tender submit-tance and response,e-auctions, online negoti-ations, and spendinganalyses.
KEY TERME-sourcing 12
REFERENCES FOR ONLINE FILE W5.6e-jing. “E-Procurement,” e-jing.net/en/solutions/
e-procurement. htm (no longer available online).Johnson, P. F., and R. D. Klassen. “E-Procurement.” MIT
Sloan Management Review (Winter 2005).Minihan, T. “The Truth About E-Sourcing.” Supply
Excellence, March 31, 2009. supplyexcellence.com/blog/2009/03/31/truth-about-e-sourcing (accessedApril 2009).
Moai. “Solutions Overview.” moai.com/solutions/solutions_overview.asp (accessed April 2009).
Podlogar, M. “Simplifying the Procurement Process byUsing E-Commerce.” International Journal of Internetand Enterprise Management, 4, no. 2 (2006).
Zhao, F. Maximize Business Profits Through E-Partnership.Hershey, PA: Idea Group Inc., 2006.
Chapter Five: B2B E-Commerce 5-13
ONLINE FILE W5.7Application Case
GXS—AN EXCHANGEto concentrate on strategic activities rather than onpaperwork, photocopying, and envelope stuffing.
◗ It used to take 18 to 23 days to identify suppliers, preparea request for bid, negotiate a price, and award the contractto a supplier. After implementation of the TPN, it took 9 to11 days.
◗ With the transaction handled electronically from beginningto end, invoices could be automatically reconciled withpurchase orders, reflecting any modifications that hap-pened along the way.
◗ GE procurement departments around the world were ableto share information about their best suppliers. InFebruary 1997 alone, GE Lighting found seven new sup-pliers through the Internet, including one that charged20 percent less than the second-lowest bid.
By 2001, 12 of GE’s divisions were purchasing their non-production and MRO materials over the Internet for an annualtotal of $6 billion (35% of their total procurement). GeneralElectric estimates that streamlining these purchases alonehas saved the company $500 to $700 million annually.
The Inception of GXSDue to the success of TPN, GE expanded the system, makingit a public posting place for other buyers. In 2001, TPN wasacquired by GXS Express Marketplaces, which was operated byGE Global Exchange Services (gxs.com). GXS now operates asa public marketplace on which many other companies placeRFQs. GXS has over 100,000 trading partners in 58 countries,and in 2004 it processed over 1.2 billion transactions valuedat over $1 trillion. It is one of the most profitable dot-comcompanies. In June 2002, it was sold to Francisco Partnersunder whose control it continues to operate under the nameGXS (gxs.com). GXS also assumed the EDI services of GEInformation Services.
Benefits of GXSSuppliers in the GXS system can gain instant access to globalbuyers (including GE) with billions of dollars in purchasingpower. In addition, they may dramatically improve the pro-ductivity of their own bidding and sales activities. Other ben-efits are increased sales volume, expanded market reach andability to find new buyers, lower administration costs forsales and marketing activities, shorter requisition cycle time,improved sales staff productivity, and a streamlined biddingprocess.
General Electric reports that the benefits of GXS extendbeyond its own walls. As an example, computer resellerHartford Computer Group reports that since joining GXS, ithas increased its exposure to different GE business units sothat its business with GE has grown by over 250 percent. Inaddition, GXS has introduced Hartford Computer Group toother potential customers.
More generally, the benefits of GXS to purchasingdepartments include the following: streamlining sourcing
General Electric’s material costs increased 16 percentbetween 1982 and 1992 (gxs.com 1999). During those sameyears, GE’s product prices remained flat or for some productseven declined. In response to the cost increases, GE beganan all-out effort to improve its purchasing system. The com-pany analyzed its procurement process and discovered thatits purchasing was inefficient, involved too many trans-actions, and did not leverage GE’s large volumes to getthe best prices. In addition, more than one-quarter of its1.25 million invoices per year had to be reworked becausethe purchase orders, receipts, and invoices did not match.
TPN at GE’s Lighting DivisionOf a number of steps GE took to improve its procurement,one of the most innovative was the introduction of an elec-tronic tendering system that started in GE’s LightingDivision.
Factories at GE Lighting used to send hundreds of RFQs tothe corporate sourcing department each day, many for low-value machine parts. For each requisition, the accompanyingblueprints had to be requested from storage, retrieved fromthe vault, transported to the processing site, photocopied,folded, attached to paper requisition forms with quote sheets,stuffed into envelopes, and mailed out to bidders. This processtook at least 7 days and was so complex and time-consumingthat the sourcing department normally sent out bid packagesfor each part to only two or three suppliers.
In 1996, GE Lighting piloted the company’s first e-procurement system, called the Trading Process Network(TPN) Post. With this online system, the sourcing departmentreceived the requisitions electronically from its internal cus-tomers and sent off a bid package to suppliers around theworld via the Internet. The system automatically pulled thecorrect drawings and attached them to the electronic requisi-tion forms. Within 2 hours from the time the corporate sourc-ing department started the process, suppliers were notifiedof incoming RFQs by e-mail, fax, or EDI. They were given7 days to prepare a bid and return it electronically to GELighting. Then the bid was transferred internally, over thecorporate intranet, to the appropriate evaluators, and acontract could be awarded that same day.
Benefits of TPNAs a result of implementing TPN, GE realized a number ofbenefits:
◗ Administrative labor involved in the procurement processdeclined by 30 percent. At the same time, material costsdeclined 5 to 50 percent due to the procurement depart-ment’s ability to reach a wider base of competing suppliersonline.
◗ GE was able to cut by 50 percent the number of staffinvolved in the procurement process and redeploy theunnecessary workers into other jobs. As a result, thesourcing department had at least 6 to 8 free days a month
(continued)
5-14 Part 3: Business-to-Business E-Commerce
ONLINE FILE W5.7 (continued)
processes with current business partners; finding and build-ing partnerships with new suppliers worldwide; rapidly dis-tributing information, specifications, and electronic drawingsto multiple suppliers simultaneously; and cutting sourcingcycle times and reducing costs for sourced goods.
Deployment Strategies and ChallengesThe GE case demonstrates two deployment strategies for ECinitiatives. The first is to start EC in one division (GE startedin its Lighting Division) and slowly go to all divisions. Thesecond is to also use the site as a public bidding marketplaceto generate commission income.
Even though GE was successful with its e-procurementsystem, it could not reach its original plan of 100 percent e-procurement due to connectivity difficulties with SMEs.
By 2001, of its 30,000 suppliers, roughly 25 percent (7,500suppliers) were performing the critical procurement missionson the Web. Another 7,500 or so were connected to GE usingthe dated EDI networks. That left another 15,000 suppliersthat relied mainly on manual processes to conduct businesswith GE (Moozakis 2001). (Connecting with SMEs is acommon challenge in B2B implementation.)
Questions1. List and briefly discuss the benefits of GXS to GE.
2. List and briefly discuss the benefits of GXS to GE’scustomers.
3. Why did GE sell the system?
REFERENCES FOR ONLINE FILE W5.7gxs.com (accessed January 2008).Moozakis, C. “GE Scales Back.” Internet Week, May 10,
2001. orafaq.com/maillist/oracle-l/2001/05/11/1056.htm (accessed January 2008).
Trading Process Network. “Extending the Enterprise:TPN Post Case Study—GE Lighting.” Trading ProcessNetwork, 1999. tpn.geis.com/tpn/resource_center/casestud.html (no longer available online).
Chapter Five: B2B E-Commerce 5-15
ONLINE FILE W5.8Application Case
THE RISE AND FALL OF COVISINTThere are only several major automakers, but they buy parts,materials, and supplies from thousands of suppliers, who fre-quently buy parts and materials from thousands of subsuppli-ers. At times, the procurement process is slow, costly, andineffective.
On February 25, 2000, General Motors Corporation,Ford Motor Company, and DaimlerChrysler launched a B2Bintegrated buy-side marketplace called Covisint. The goalwas to eliminate redundancies from suppliers through inte-gration and collaboration, with promises of lower costs,easier business practices, and marked increases in efficien-cies for the entire industry.
The name Covisint (pronounced KO-vis-int) is a combi-nation of the primary concepts of why the exchange wasformed: The letters “Co” represent connectivity, collaboration,and communication; “vis” represents the visibility that theInternet provides and the vision of the future of supply chainmanagement; and “int” represents the integrated solutionsthe venture offers as well as the international scope of theexchange.
The purpose of the marketplace’s connectivity was tointegrate buyers and sellers into a single network. Visibilitywas intended to provide real-time information presented in away that speeds decision making and enables communicationthrough every level of a company’s supply chain, anywhere inthe world. By using the Web, a manufacturer’s productionschedule and any subsequent changes were able to be sentsimultaneously and instantly throughout its entire supplychain. The result was less need for costly inventory at all lev-els of the supply chain and an increased ability to respondquickly to market changes.
Typically, an automaker would buy parts from one sup-plier, who in turn would buy from its suppliers (subsuppliers),who would then buy from other suppliers (sub-sub-suppliers).In this traditional linear supply chain, the automaker commu-nicates only with its top-tier (tier 1) suppliers.
Imagine that the auto manufacturer has hundreds of sim-ilar supply chains, one for each supplier, and that many of thesuppliers, in all tiers, produce for several manufacturers. Theflow of information will be very complex. This complexityintroduces inefficiencies in communication as well as difficul-ties for the suppliers in planning their production schedules tomeet demand, resulting in supply chain problems.
The Covisint process greatly changed supply chain com-munication in the automobile industry. Rather than being atthe top point of a pyramid, as in the industry’s traditionalsupply chain, the auto manufacturers were at the center of aspoke-and-wheel arrangement. By 2004, Covisint served 19automakers. The Covisint trading hub enabled the automakersand their various suppliers and subsuppliers to communicatedirectly with anyone else. Instead of an array of unorganizedcommunication lines, it is all organized in one place.
One of the major objectives of the exchange was tofacilitate product design. Covisint offered its customersbest-of-breed functionality; customers took the bestaspects from multiple technical providers. The ability tointegrate providers across the supply chain creates aunique environment for collaborative design and develop-ment (collaborative commerce), enables e-procurement,and provides a broad marketplace of buyers and suppliers.It makes accessible a wealth of supply chain expertise andexperience, ranging from procurement to product develop-ment. Covisint’s potential membership was about 30,000suppliers.
Because of its large size, the exchange has been devel-oping slowly. Nevertheless, on May 8, 2001, DaimlerChryslerused Covisint to successfully conduct a $3 billion reverseauction for auto parts that lasted 4 days. However, in July2002 the founders of Covisint ceased to provide funding.They remain shareholders, but Covisint is now controlled byan independent board and an advisory council made up of 21of the largest suppliers and OEMs (Original EquipmentManufacturers) to the automotive industry. By early 2003, anew CEO was trying to accelerate Covisint’s progress. In sum-mer 2004, Covisint was acquired by Compuware Corp. BySeptember 2004, the exchange was still struggling finan-cially, even though it provides services to 20,000 companiesin 96 countries.
By 2006, Covisint had changed direction, providingglobal trading services. A major area of Covisint’s focus ispartner collaboration and integration. It provides completesolutions for safely sharing internal applications withexternal users, automating external partner user lifecyclemanagement and administration, and providing reliabledata messaging (including EDI) between partner applica-tions and systems.
As of 2009, Covisint’s major offerings include security,a portal, and messaging as a managed service. The companyoperates the largest identity-management-as-a-service net-work in the world. Covisint now provides access to a globalcommunity of 100,000 users, representing 45,000 companiesin 96 countries.
Questions1. Describe the concepts upon which Covisint is structured.
2. Describe how Covisint changed the supply chain in theautomobile industry.
3. Investigate the current ownership and management ofCovisint.
4. Enter covisint.com/about. How does the new companydiffer from the old one?
5-16 Part 3: Business-to-Business E-Commerce
REFERENCES FOR ONLINE FILE W5.8covisint.com (accessed April 2009).Covisint. “Mercator Software Selected by Covisint to
Integrate Best-of-Breed Applications.” Covisint pressrelease, February 7, 2001. thefreelibrary.com/Mercator+
Software+Selected+By+Covisint+to+Integrate+Best-Of-Breed . . . -a071130604 (accessed January 2008).
Covisint. “About Covisint.” 2009. covisint.com/about(accessed April 2009).
ONLINE FILE W5.9Application Case
GLOBAL TRANSPORTATION EXCHANGEAlthough much publicity is given to public exchanges thatdeal with materials and products, such as ChemConnect, sev-eral service-oriented exchanges have been created, and someof them are growing rapidly. One such exchange is a globaltransportation exchange for ocean transportation namedGlobal Transportation Network (GTN).
GTN was formed in 2001 by a consortium of 13 oceancarriers (lines) that collectively represent more than 40 percentof worldwide capacity, and a software company, GT Nexus(gtnexus.com) that specializes in global logistics and supplychain products.
The objective of the exchange, which is primarily aportal type, is to serve the ocean-shipping industry. Theindustry is composed of carriers, shippers (such as Wal-Martand others who import many goods from abroad), and ser-vice providers (such as banks, insurance brokers, freightforwarders, and logistics providers). The mission of theexchange is to fundamentally change the process of gettinggoods around the world by using the Internet to providesuperior service that maintains complete security for cus-tomers and the carriers. GT Nexus and its CEO are theexchange managers.
To develop the portal, the management team workedwith many customers to identify customer needs and deter-mine how the portal could help meet them. Customerswanted a multi-EC model that could meet their diversifiedneeds in a unified way. Existing B2B software products weretoo narrow; a custom portal had to be built.
The GTN e-commerce platform is much more than aportal. It supports core transactional capabilities such asbooking, invoicing, payment, tracking and tracing, ratenegotiation, container management, and scheduling. GTNoffers standardized booking, documentation, and trackingsystems and provides better and more efficient customersupport. In addition, it provides customized capabilitiestailored for specific customers and carriers, including rateand contract management, cargo forecasting, and resourceallocation. The benefits of the system to the ocean-shipping industry include:
◗ Significant efficiencies and cost savings. GTN frees indi-vidual carriers from the huge capital costs associated with
the advanced technologies and resources required to cre-ate proprietary technology methods.
◗ Standardization and ease of use. GTN automates coretransactions and makes it easier for customers to conductbusiness with multiple providers using common standards.
◗ Secure and confidential access. GTN provides a secureand confidential environment for customers and carriers toconduct business over the Internet.
Industry experts have observed various improvementsfor the participants of the exchange.
A single carrier cannot afford to offer as many EC appli-cations as the exchange offers; therefore, the exchange hasgreatly expanded the number of applications available tocarriers. The system also has enabled customers to do busi-ness electronically throughout every process in the shipmentcycle. For example, contract negotiation, a very time-consuming process, has been speeded up by the exchange.In addition, because carriers now have access to many moreshippers than they could have found on their own, the num-ber of electronic transactions for carriers has doubled, evenin the first year of operation in the exchange. Carriers havealso been able to improve customer service, one of the majormotivators for using the exchange.
The shipping industry is deregulated and very competi-tive. However, lots of cooperation, such as vessel sharing,still goes on. The GTN system helps to facilitate such collab-oration. Several alliances among carriers also exist, and theyare supported by the system. Information sharing via openstandards and Web-enabled systems is a primary objective ofthe portal.
The technology of the exchange has contributed to itseffectiveness. Data fit the internal IT systems of all users.Standardized processes allow carriers to present their servicesto shippers in the same way. Clients are able to use oneinterface to retrieve any information, regardless of the carrierwith which the booking was made. The system uses a securedInternet connection (with a VPN) and has an optional EDI forsome transactions. It also allows for competitive tenderingthrough reverse auctions. The exchange was recognized byInfoWorld Magazine as one of top three technology projects.In 2005, GTNexus introduced an integrated freight audit
(continued)
Chapter Five: B2B E-Commerce 5-17
ONLINE FILE W5.9 (continued)
solution that enables shippers to compare the rates in theircarrier service contracts with freight invoices that are col-lected directly from the carrier systems.
For the 2006 bid season, GT Nexus tallied the followingresults:
◗ Over 2.6 million TEUs procured and managed over the portal(one TEU is a 20-foot cargo container or its equivalent)
◗ More than $3.5 billion in transportation services contractedwith carriers
◗ Participation of ocean carriers who together control morethan 90 percent of global TEU capacity
These numbers are up 150 percent from 2005 and repre-sent over 20 percent of all container volume moving in andout of North America. This demonstrates two things. First, theconcept of going online to handle a multimillion-dollar,strategic-transportation activity has become common for bigshippers. And second, GT Nexus has become the industry stan-dard and market leader for global transportation management.
In 2008, the portal began supporting the open standardsof SOA, providing Web Service–based access to industry-standard ocean and air freight invoices. All of the various carrier-specific invoice formats were mapped to a universalstandard so that by integrating with GT Nexus customers or
third-party software systems can input uniform freightinvoices from all carriers directly into transportation manage-ment or financial systems.
Questions1. Identify the critical success factors of this exchange.
2. Is a consortium the best type of ownership for thiskind of exchange?
3. Although there are thousands of shippers, some ofthem are very large (e.g., Wal-Mart), does it makesense to have them create a shippers’ exchange? Whyor why not?
4. What motivates a carrier to participate in theexchange?
5. What motivates a shipper to participate in theexchange?
6. How was customer service improved by the exchange?
7. Research GT Nexus’ on-demand model and list itscapabilities.
REFERENCES FOR ONLINE FILE W5.9Angwin, J. “Top Online Chemical Exchange Is an Unlikely
Success Story.” The Wall Street Journal Online, January 8,2004. chemconnect.com/pdfs/WSJ_SuccessStory.pdf(accessed March 2009).
GT Nexus. “GT Nexus Delivers Standardized Oceanand Air Freight Invoices for Logistics Industry.”
September 10, 2008. gtnexus.com/press_room/press_releases. php?releaseID=114 (accessed April 2009).
One of the major categories of partner relationship management (PRM) is supplier relationshipmanagement (SRM), in which the partners are the suppliers. For many companies (e.g., retailersand manufacturers), the ability to work properly with suppliers is a major critical success factor.PeopleSoft, Inc. (an Oracle company), developed a model for managing relationships with suppli-ers in real time.
PeopleSoft’s cyclical SRM model (see Schecterle 2003) is generic and could be consideredby any large company. It includes 13 steps, as shown in Exhibit W5.10.1. The details of thesteps are shown in Exhibit W5.10.2. The core idea of this model is that an e-supply chain isbased on integration and collaboration. The supply chain processes are connected, decisions are
supplier relationshipmanagement (SRM)A comprehensiveapproach to managingan enterprise’s interac-tions with the organiza-tions that supply thegoods and services it uses.
(continued)Source: Based on Schecterle, B. “Management and Extending Supplier Relationships,” People Talk, April–June 2003.
Chapter Five: B2B E-Commerce 5-19
Online File W5.10 (continued)
EXHIBIT W5.10.2 Managing SRM in Real TimeStep Description1. Access Identify all the resources required to meet the product or service needs
of the enterprise.2. Identify suppliers The availability of a large pool of approved suppliers improves options
down the road.3. Assess supplier Check past performance, testimonials, and stated capabilities.
performance4. Negotiate Prices and other relevant terms count only when combined.5. Contract Identify and register trading partners. Award contracts to the
appropriate suppliers.6. Connect Bridge the enterprise and suppliers through procurement procedures
everyone involved can see. Facilitate collaboration.7. Engage Enable interactions between the enterprise and suppliers. Show
suppliers your forecasted needs and their performance ratings. Look at their inventory and projections.
8. Transact Collect orders from across the enterprise. Create purchase orders and check them against budgets. Transmit purchase orders using tendering and RFQ.
9. Deliver As goods are pulled from the supplier’s stock, wireless barcode readers update inventory levels. Shipping invoices are generated, and the goods are delivered.
10. Receive Wireless devices can help in determining whether everything ordered arrives as planned, in good condition, and in the right quantities.
11. Resolve Resolve any disputes and pay only if satisfied. Explain why payment iswithheld.
12. Pay Settle up with suppliers and check the actual cost against the projected cost. Set an ERS (Electronic Receipt Settlement).
13. Analyze Analysis of the process can bring any problems to light and lead toimprovements.
made collectively, performance metrics are based on common understanding, information flows are in real time (wheneverpossible), and the only thing a new partner needs in order to join the SRM system is a Web browser.
Implementing PRM and SRM is different from implementing CRM with individual customers. For example, behavioraland psychological aspects of the relationships are less important in PRM than in CRM. However, trust, commitment,quality of services, and continuity are more important in PRM. For details, see McNichols and Brennan (2006) andMarkus (2006).
KEY TERMSupplier relationship management (SRM) 18
5-20 Part 3: Business-to-Business E-Commerce
REFERENCES FOR ONLINE FILE W5.10Markus, L. “The Golden Rule.” CIO Insight, July 2006.McNichols, T., and L. Brennan. “Evaluating Partner
Suitability for Collaborative Supply Networks.” Inter-national Journal of Networking and Virtual Organisations,3, no. 2 (2006).
Schecterle, B. “Managing and Extending SupplierRelationships.” People Talk, April–June 2003.
