EC_B2B

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1Prentice Hall, 2002

Chapter 6

Company-Centric B2B

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Learning Objectives

Describe the B2B field

Describe the major types of B2B models

Describe the characteristics of the sell-sidemarketplace

Describe the sell-side intermediariesmodels

Describe the characteristics of the buy-side marketplace and e-procurement

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Explain how forward and backward auctionswork in B2B

Describe B2B aggregation and grouppurchasing models

Describe collaborative e-commerce

Understand issues concerning theimplementation of company-centric B2B

Distinguish Internet-based EDI fromtraditional EDI

Learning Objectives (cont.)

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General Motors B2B Initiatives

EC initiativesbuild-to-order project to be inplace by 2005 reducing inventory of finishedcars

Selling capital assets

TradeXchange online auctions of items like

used machines for manufacturingSignificantly decreases time for sales

Increases dollar amount of the sales

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General Motors B2B Initiatives

EC initiatives at TradeXchangeBuying commodity products--$1 billion annual

expenditure for direct and indirect productsTraditional process

Length of time measured in weeks

Cost prohibited the number of bids

Reverse auctionautomated processInternet open bidmany suppliers takepart

Job is awarded quickly

Price to GM significantly lower

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Concepts and Characteristics of B2B EC

B2B EC defined

Transaction conducted electronically betweenbusiness over the networks

Internet

Extranets

IntranetsPrivate networks (e.g., EDI)

Automated trading improves the process

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Concepts and Characteristics

of B2B EC (cont.)

Market size and content

Expected to grow from $1.1 trillion in 2003to $10 trillion by 2005

Percentage of Internet-based B2B from2.1% in 2000 to 10% in 2005

Private and public e-marketplacePrivateone-to-many mode

Publicmany-to-many mode

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of B2B EC (cont.)

How is B2B conducted?

Directly between buyer and seller

Via an online intermediary

Along the supply chain

With or without intermediaries

Types of transactions

Spot buyingdetermined by dynamic supplyand demand

Strategic sourcinglong term contracts

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Figure 6-1

B2B Supply Chain

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of B2B EC (cont.)

Entities of B2B ECSelling companymarketing management

perspectiveBuying companyprocurementmanagement perspective

Electronic intermediariesoptional thirdparty directory service provider (scope of

service may be extended to orderfulfillment)

Trading platformspricing and negotiationprotocol (auctions, reverse auctions)

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of B2B EC (cont.)

Entities of B2B EC (cont.)Payment servicesmechanism for

transferring money to sellersLogistics providerslogistics to completetransaction (packaging, storage, delivery)

Network platformsInternet, VAN, intranet,extranet

Protocols of communicationEDI or XML

Back-end integrationconnecting to ERPsystems, databases, functional applications

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of B2B EC (cont.)

Product

Customer

Supplier

Product processTransportation

Inventory

Supply chain

Competitor

Sales and marketingSupply chain processand performance

Information processed in B2B

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of B2B EC (cont.)

Electronic intermediaries in B2BConsumers and business may share intermediaries

Businesses may use different intermediaries withdifferent suppliers

Benefits of B2B modelsEliminate paper-based systems

Expedite cycle time

Reduce errorsIncrease employee productivity

Reduce costs

Increase customer service and partnershipmanagement

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B2B Models

Company-centric models

Sell-side marketplace (one-to-many)

Buy-side marketplace (many-to-one)

Many-to-many marketplacesthe exchange

Buyers and sellers meet to trade

Trading communitiesTrading exchanges

Exchanges

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B2B Models (cont.)

Other B2B models and servicesFor the purpose of selling

For the purpose of buyingValue chain integrators

Value chain service providers

Information brokers

Vertical vs. horizontal marketplacesVerticalone industry or industry section

Horizontalservice or product used in severaltypes of industries

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B2B Models (cont.)

Virtual service industries in B2B

Travel and tourism servicesReal estate

Electronic payments

Online stock trading

Online financing

Other online services

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Figure 6-2

Sell-Side Marketplace Architecture

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Sell-Side Marketplaces:One-to-Many

Virtual sellersBigboxx.com.hk of Hong Kong

B2B office supply retailer servicesLarge corporate clients

Medium corporate clients

Small offices

Goalsell products in various SE Asian countriesOffers more than 10,000 items

Uses more than 300 suppliers

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Sell-Side Marketplaces:

One-to-Many (cont.)

Virtual sellersBigboxx.com.hk of Hong Kong(cont.)

Company portal attractive, easy to useBrowse online catalogs

Use search engines

Payments

Cash or check upon deliveryAutomatic payments

Credit card

Purchasing card

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One-to-Many (cont.)

Virtual sellersBigboxx.com.hk of Hong

Kong (cont.)DeliveryOwns trucks and warehouses

Delivery scheduled online

Same day (within an hour)

Specifically scheduled time

Ordering system integrated with SAP-basedback-office system

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One-to-Many (cont.)

Virtual sellersBigboxx.com.hk of HongKong (cont.)

Value-added servicesTrack status of order

Check stock availability

Promotions

Customized pricesGroup accounts and central approvalforbusinesses with multiple branches

Standing orders automatically activated

Large number of reports and data available

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One-to-Many (cont.)

Customer serviceGeneral Electric

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

Milacron, Inc.

Site contains 55,000 productsEasy to use

Securely handles selection, purchase,application

Technical serviceexpanded to provide ahigher level of service than previously available

at the site

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One-to-Many (cont.)

Dell

Intel

IBM

Cisco

Direct sales from catalogs

Configuration and customization

Efficient customization for direct sales

Business customers

Customize products

Receive price quote

Submit order

Successful cases

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One-to-Many(cont.)

Direct sales from catalogs

BenefitsReduces costs (to buyers and sellers) anderrors during the process

Speeds up order cycle

Ability to customize productsOffer different prices to different customers

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One-to-Many(cont.)

Direct sales from catalogs (cont.)

LimitationsChannel conflicts with distributionsystems

High cost when traditional EDI used

Large number of business partners isneeded to justify system

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Selling Side:

Auctions and Other Models (cont.)

Using intermediaries when:No resources required

Own and control auction information

Fast time to market

Searching and reporting

Search and report all auction activitiesStandard reports available

Additional analysis of complex information

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Selling Side:

Auctions and Other Models (cont.)

Billing and collection

Automatic calculation of shipping weights and

chargesPaymentencrypted credit card data

Billing informationeasily downloaded intoexisting systems

Successful if:Sufficient number of loyal customers

Products well known

Price not major purchasing criteria

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Sell-Side Case:

CISCO Connection Online (CCO)

Benefitssaves the company $363 million

per year in:Technical support

Human resources

Software distributionMarketing material

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Cisco Connection Online (CCO) (cont.)

Customer serviceCiscoConnectiononline

OnlineorderingInternet roductCenterbuilds virtuall all products toorder

Order statuscustomer tools for findingans ers toorder status inquiries

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Benefits to Cisco

Reduced operating costs for order takingEnhanced technical support and customerservice

Reduced technical support staff cost

Reduced software distribution costsLead times reduced fro 4-10 days to 2-3 days

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Benefits to customers

Quick order configuration

Immediate cost determination

Collaboration with Cisco staff

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Sell-Side Intermediaries

Marshall Industries(a subsidiary ofAvnetMarshall)multinational distributor of

electronic components known for its innovative usesof IT and the Web

Products and servicesMarshallNet

Marshall on the Internet (portal)

Strategic European Internet

Electronic Design Center

PartnerNet

NetSeminar

Education and News Portal

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Sell-Side Intermediaries (cont.)

Marshall Industriesa subsidiary or

AvnetMarshall (cont.)Survival strategy

Continuous improvement programs andinnovations

Team-based organization, flat hierarchy,decentralized decision making

Profit sharing compensation for salespeople

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Marshall Industriesa subsidiary ofAvnetMarshall (cont.)

Survival strategy

CRM highly promoted

Web-based services create value betweensuppliers and customers

EC initiatives supported by:Changing internal organization

Changing internal procedures

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Boeings PARTActs as an intermediary between the airlines

and parts suppliersProvides a single point of online accessthrough which airlines and parts providers canaccess the data needed

Goal: provide its customers with one-stopshopping for online parts and maintenanceinformation and ordering capability

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Boeings PART

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 part and delivers

Debut of PART on the InternetEncourages customers to order parts electronicallycheap, easy, fast

50% of customers using Internet within first year


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Boeings PART

Benefits of PART onlineImproved customer service

Significant operating savings

New sales opportunities

Customer service online reducedPhone calls (purchasing, order status etc.)

Data entry


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Boeings PARTPortable access to technical drawings/support

Boeing On Line Data (BOLD) providesavailability to:

Engineering drawings

Manuals

CatalogsOther technical information

Portable Maintenance Aid (PMA)solvesmaintenance problems

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Boeings PART

Benefits to Boeings customersIncreased productivityless time searchingfor information

Reduced costsdelays at gate reduced

because all information is availableIncreased revenuesfaster service providestime savings

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Buy Side: One-from-Many,

E-Procurement

Purchasing agents (buyers)Direct purchasing

Use of material is scheduledNot a shelf item

Indirect purchasingMROs

Nonproduction materials

Inefficiencies in procurement managementof indirect materials

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Figure 6-3

A Traditional Purchasing Process Flow

Source: ariba.com, February 2001.

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E-Procurement (cont.)

Goals of procurement reengineering

Increase purchasing agent productivity

Lower purchasing prices of items

Improve information flow and management

Minimize maverick (unplanned) buying

Improve payment processStreamline purchasing process to make it:

Simple

Fast

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Goals of procurement reengineering (cont.)

Reduce administrative processing cost per orderFind new suppliers and vendors to providefaster/cheaper goods and services

Integrate procurement process with budgetary

control in an efficient and effective wayMinimize human errors in buying or shippingprocess

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Figure 6-4

Buy-Side B2BMarketplace Architecture

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Direct vs. indirect sourcingTools to automate purchasing goods

Direct or mission critical80% of manufacturers expenditure

Long-term relationship with vendor ofknown quality goods

Tight integration with suppliers alongsupply chain

Indirectuse of public exchanges forindirect sourcing

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Buy Side: Reverse Auctions

Pre-Internet Reverse auction processPrepare description of product to be produced

Announce project via ads, mail, telephone

Send detailed information to interested vendors

Vendors prepare proposals

Bidders submit document proposals

Proposals evaluatedProblems:Laws

Expensive

Errors

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Buy Side: Reverse Auctions (cont.)

Web-based reverse auction processBuyers prepare bidding project information

Buyers post project on portalIdentify potential suppliers

Invite suppliers to bid

Suppliers download project information

Suppliers submit electronic bidReverse auction in real-time, or it can take a fewdays

Buyers evaluate and award contract

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Buy Side: Reverse Auctions (cont.)

Web-based reverse auction process

Benefits:

Electronic process is faster

Administratively much less expensive

E

nables location of cheapest possibleproducts

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Procurement Revolution at GE

TPN atGE Lighting DivisionPurchasing was inefficienttoo many administrativetransactions

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 tobid)

2 hours to send information to suppliers

Evaluate and award bids same day

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Procurement Revolution at GE (cont.)

Benefits to GE

Involvement in procurement process

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

Redeployment

60% of the staff

Sourcing department concentrates onstrategic activities instead of paperwork,etc.

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Benefits to GE

Time to identify suppliers, prepare a request for

bid, negotiate a price, and award the contractWas 18-23 days

Now 9-11 days

Invoices automatically reconciled reflecting

modificationsGE procurement departments share informationabout their best suppliers across the world

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Benefits to buyers

Worldwide supplier partnerships

Current business partnersStrengthen relationships

Streamline sourcing process

Rapid distribution of information

Transmit electronic drawings to multiple suppliers

Decrease sourcing cycle time

Quick receipt and comparison of pricing bids

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Deployment strategies

Start EC in one division and slowly go to alldivisions

Use the site as public bidding marketplace to

generate commission income toG

E

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Aggregating Catalogs

Aggregating suppliers catalogs: an internalmarketplace

Maverick buying to save time leads to high pricesAggregating all approved suppliers catalogs inone place

Reduced number of suppliers

Buyers at multiple corporate locations

Fewer and remote suppliers

Larger quantity/lower costs

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Group Purchasing

Group purchasingorders from severalbuyers are aggregated

Internal aggregation

Economy of scale

Reduced transaction processing cost

External aggregation

Aggregating demand online

Putting together orders from multiplebuyers to make large volumes/lower costs

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Electronic Bartering

Electronic barteringExchange of goods or services without the use of

moneyExchange a surplus for other need

Bartering exchangeSubmit surplus to exchange for points

Points used to buy what company needsBenefits:

Faster than manually

Easier to match

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Collaborative Commerce (C-Commerce)

Web-based systems used betweenand among suppliers for:

Communication

Design

Planning

Information sharingInformation discovery

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Collaborative Commerce

(C-Commerce) (cont.)

Webcore construction goes online with itspartners

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Figure 6-6

Suppliers Extranet: Hudson Dayton Case

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Reduce design cycle time by connectingsuppliers: Adaptec, Inc.

Microchip manufacturer supplying electronic

equipment makersOutsources manufacturing tasks

Delivery times exceeded their competitors

Solution to the problem

Extranet and enterprise-level supply chainintegrated software

Significantly reduced order-to-productdelivery time

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Suppliers

Distributors

Overseas

Factories

Customers

Reduce product development time by connectingsuppliers: Caterpillar, Inc.

Heavy machinery manufacturer uses extranetRequest for customized component directly to

designers and suppliers ship to buyers

Connect engineering and manufacturing division with

worldwide

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Other examples of c-commerce

Tricon Restaurant Internationalglobal brand

marketing managementRE/MAXreal estate franchiser improvedcommunication and collaboration betweenindependent owners

Marriott Internationallinks corporations,franchising partners, suppliers, customers

Nygard of Canadainterorganizational collaboration

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B2B Infrastructure

Server to host database and applications

Software for executing sell-side (catalogs)

Software for conducting auctions and reverseauctions

Software for e-procurement (buy-side)

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B2B Infrastructure (cont.)

Software for CRM

Security hardware and software

Software for building a storefront

Telecommunications networks and

protocols

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Integration

ERP software

Customer, supplier, and other databases

Legacy systems

Catalog (product) information

Inventory systems

Sales statisticsDecision support systems (DSS) and SCMapplications

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Integration (cont.)

Integration with existing information systems

Issues in integrating with back-end information

systems:Intranet-based work flow

Database management systems (DMBS)

Application packages

ERP

Back-end sell-side integration works forsellers but not buyers and vice versa

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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

Fi 6 7

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B2BAgents

Figure 6-7

Intelligent Agent-Based Commerce

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

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Implementation Issues

Justification and prioritization

Must conduct cost benefit analysis of proposedprojects

Include organizational impacts

Possible channel conflicts

Dealing with resistance to change due to

processes reengineeringCost-benefit analysis related to:

Finding B2B opportunities

Prioritizing potential initiatives

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Implementation Issues (cont.)

Vendor selection

Primary vendor uses its software and procedures,

adds partners as neededIntegrator mixes and matches existing productsand vendors to create best of the breed

Affiliate programs

Referral program

Useful for B2B intermediaries

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Implementation Issues (cont.)

Implementing e-procurement

Fit e-procurement into EC strategyReview and change procurement process itself

If ERP or SCM is in placeintegrate e-procurement,If not in placeBPR before implementation

Coordinate buyers information system with sellers

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Managerial Issues

B2B marketingsell-side marketplaces requireadvertisement and incentives

Which models to use and whenneed forimplementation strategies and prioritization

Purchase process reengineering (BPR)

Establish buy-side marketplace on its server ifvolume is big enough to attract major vendors

Join third-party intermediary-oriented marketplace ifvolume is small

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Managerial Issues (cont.)

Integrationtrading in e-marketplaces isinterrelated with logistics

Particularly true in many-to-many exchanges

Company-centric marketplaces must integrate:

Logistics

Other support services

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Business ethics

Accessing unauthorized areas in the tracingsystem should not be allowed

Privacy of partners should be protectedtechnically and legally

Auctionsboth forward and reverse

Benefits are substantialImplementation is relatively simple

Considerable flexibility in implementation

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E-procurementcritical success factors

Need to cut down number of routine

tasksReduce overall procurement cycle usingappropriate information technologies

Workflow

GroupwareERP software

B2B models

Documents

EC_B2B