ONLINE FILE W5.1 BUYING FROM VIRTUAL SELLER BIGBOXXwps.prenhall.com/.../5073/5195381/pdf/Turban_Online_W5.pdf · 2007-11-15 · ONLINE FILE W5.2 BOEING’S PARTS MARKETPLACE Boeing

Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 1

ONLINE FILE W5.1

BUYING FROM VIRTUAL SELLER BIGBOXX.COMBigboxx.com (bigboxx.com), based in Hong Kong, is a B2Bretailer of office supplies. It has no physical stores and sellsproducts through its online catalog; thus, Bigboxx.com isan online intermediary. The company has three types ofcustomers: 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, the 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.

Questions1. Enter bigboxx.com and staples.com and compare their

B2B offerings and purchase processes. (Take the tutorialat 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 November 2006).Chan, W. C., T. C. Chu, A. R. Gold, and G. Leibowitz.

“Thinking Out of the Box.” The McKinsey Quarterlyno. 2 (2001).

2 Part 3: Business-to-Business E-Commerce

ONLINE FILE W5.2

BOEING’S PARTS MARKETPLACEBoeing (boeing.com) is the world’s largest maker of airplanes for commercial and militarycustomers. It also plays the role of intermediary in supplying replacement and maintenanceparts to airlines. Unlike other online B2B intermediaries, revenue from its intermediaryactivities may be a minor concern to Boeing, which makes most of its revenue from sellingairplanes. The major goal of Boeing’s intermediary parts market, called PART (PartAnalysis and Requirement Tracking), is supporting customers’ maintenance needs as acustomer service.

The objective of PART is to link airlines that need maintenance parts with suppliers whoare producing the parts for Boeing aircraft (see boeing.com/commercial/spares/part_page.html).Boeing’s online strategy is to provide a single point of online access through which airlines (thebuyers of Boeing’s aircraft) and the maintenance and parts providers (Boeing’s suppliers) canaccess data about the parts they need. These data might come from the airframe builder, thecomponent supplier, the engine manufacturer, or the airline itself. Thus, Boeing is acting as anintermediary between the airlines and the parts suppliers. With data from 300 key suppliers ofBoeing’s airplane parts, Boeing’s goal is to provide its customers with one-stop shopping foronline maintenance information and ordering.

THE SPARE PARTS BUSINESS USING TRADITIONAL EDIOrdering spare parts had been a multistep process for many of Boeing’s customers. For exam-ple, an airline’s mechanic informed the purchasing department of his company that a specificpart was needed; the purchasing department approved the purchase order and sent it toBoeing by phone or fax. The mechanic did not need to know who produced the part becausethe aircraft was purchased from Boeing as one body. However, Boeing had to find out whoproduced the part and then ask the producer to deliver the part to the customer (unlessBoeing happened to keep an inventory of that part).

The largest airlines began to streamline the ordering process about 20 years ago.Because of the volume and regularity of their orders, they established EDI connections withBoeing over VANs. Not all airlines were quick to follow suit, however. It took until 1992 toinduce 10 percent of the largest customers, representing 60 percent of the volume, to orderthrough EDI. The numbers did not change much until 1996 due to the cost and complexityof VAN-based EDI.

DEBUT OF PART ON THE INTERNETBoeing viewed the Internet as an opportunity to encourage more of its customers to orderparts electronically. With the initial investment now limited to a standard PC and basicInternet access, even its smallest customers can now participate in PART. Because of itsinteractive capabilities, many customer service functions that were handled over the tele-phone are now handled over the Internet.

In November 1996, Boeing introduced its PART page on the Internet, giving itscustomers around the world the ability to check parts availability and pricing, order parts,and track order status, all online. Less than a year later, about 50 percent of Boeing’scustomers used PART for parts orders and customer service inquiries. In its first year ofoperation, the Boeing PART portal handled over half a million inquiries and transactionsfrom customers around the world. Boeing’s spare parts business processed about 20 per-cent more shipments per month in 1997 than it did in 1996 with the same number of dataentry people. In addition, as many as 600 phone calls a day to customer service staff wereeliminated because customers had access to information about pricing, availability, andorder status online. The use of PART online resulted in fewer parts being returned due toadministrative errors. Furthermore, the service may encourage airlines to buy Boeingaircraft the next time they make an aircraft purchase. (For a demo of PART, visitboeing.com.)


As a result of PART’s success, Boeing started a complementary EC initiative calledBoeing OnLine Data (BOLD), which enables mechanics and technicians at the airport toaccess the technical manuals they need for repairs. These manuals are now available indigital form, and mechanics and technicians can access them via wireline or wirelessdevices. In May 2000, Boeing also launched a new e-business site for airline customersbased on PART and BOLD.

REFERENCES FOR ONLINE FILE W5.2“Boeing Launches New E-Business Web Site.” Aerotech News

and Review—Journal of Aerospace and Defense IndustryNews, May 12, 2000.

Boeing. “Portal Power: E-Business at Boeing GainingVelocity.” August 29, 2002. boeing.com/commercial/news/feature/ebiz.html (accessed November 2006).

ONLINE FILE W5.3

MARSHALL INDUSTRIESMarshall Industries, now part of Avnet Electronics Marketing (avnet.com), is a large distrib-utor of electronics components. It buys electronics components from manufacturers and sellsthem to businesses. Prior to its merger with Avnet in 1999, Marshall served over 30,000business customers, many of which were small in size. Marshall distributed over 130,000 dif-ferent products worldwide. Avnet was a competitor. Now, together, they have sales of over$10 billion a year.

The electronics industry is very competitive. Distributors compete against each otherand against direct marketing by the manufacturers, and they may face disintermediation.Thus, providing value-added services is key to a distributor’s survival. Marshall added valueto its customers through IT support. The company was known for its innovative use of infor-mation technologies and the Web (e.g., see Wilson 1998): It won a first prize in the 1997SIM International awards competition (simnet.org) for the best paper describing how thecompany uses IT and EC (El-Sawy et al. 1999). In 1999, Marshall was the first ever to usethe XML-based interoperable solution for B2B integration. (XML stands for eXtensibleMarkup Language, a standard for defining data elements on a Web page and B2B docu-ments.) Marshall pioneered the use of the Internet and IT applications with a view to reengi-neer its business and create new competitive strengths. Its major Web-based initiatives,which were interconnected, are listed below. Most of these initiatives still remain in the sys-tems offered by Avnet.

In addition to the physical distribution of components, distributors such as Marshall(and now Avnet) have increasingly taken on value-added tasks such as technical support,logistics, payment processing and accounts receivable, credit services, logistics, and more. Thesemiconductor industry, for example, is cyclical, causing major delivery and inventory prob-lems that distributors seek to solve. In addition, large customers are global and require globalsourcing. Time-to-market competition and customization at the customer end require a fastand flexible response from distributors. Just-in-time and supplier-managed inventories areincreasingly required from distributors. These demands require tight integration of informa-tion and provision of value-added services along the value chain. Marshall (and now Avnet)met these demands in its e-commerce initiative by providing value-added services thatenabled the company to survive as an intermediary.

MARSHALL’S SURVIVAL STRATEGYMarshall’s use of e-commerce was combined with other innovations and with business processreengineering (BPR), the introduction of a fundamental change in the way a company doesbusiness. For example, Marshall made various business process changes: The company


moved to a team-based organization with a flat hierarchy, decentralizing decision making;provided continuous improvement innovations jointly with its business partners; changedthe salesperson’s compensation from commission-based to profit sharing; promotedthe use of CRM; provided new Web-based services to create value between suppliers andcustomers; and changed the internal organizational structure and procedures to fully supporte-commerce initiatives.

Marshall was both very successful and profitable. Its EC initiatives are now practicedat Avnet Electronics Marketing as well. For additional information, see Timmers (1999),El-Sawy et al. (1999), and avnet.com (2003).

Marshall Industries’ EC InitiativesInitiative DescriptionMarshallNet An intranet that supports salespeople in the field via wireless devices and portable PCs.

Offers real-time access to the corporate database, DSS applications, and workflow and collaboration software.

Marshall on the Internet (portal) A B2B portal for customers that offers information, ordering, and tracking (using UPS software) capabilities. Established discussion group, chat room, connection to call centers. Offers special pages for value-added resellers and troubleshooting capabilities.

Strategic European Internet A strategic partner in Europe that offers MarshallNet in 17 languages, as well as additional local information.

Electronic Design Center Includes an online configuration tool. Provides technical specifications. Offers simulationcapabilities for making virtual components. The company can produce sample productsdesigned by customers.

PartnerNet Customized Web pages for major customers and suppliers. Offers access to the company’s intranet. Enables electronic payments and access to historical data and records. Also offers planning tools online.

NetSeminar An online training tool; brings suppliers and customers together for live interactions.Education and News Portal Offers education, news, and entertainment services, including consulting, sales

training, and interactive public product announcements.

REFERENCES FOR ONLINE FILE W5.3Avnet. “Avnet Enterprise Solutions Storage Initiative

Delivers Coast-to-Coast Expertise.” March 24, 2003.highbeam.com/doc/1G1-99109171.html (accessedNovember 2006).

El-Sawy, O., et al. “Intensive Value Innovation in the Elec-tronic Economy: Insight from Marshall Industries.” MISQuarterly (September 1999).

Timmers, P. Electronic Commerce: Strategies and Models forB2B Trading. Chichester, UK: John Wiley & Sons, 1999.

Wilson, T. “Marshall Industries: Wholesale Shift to theWeb.” Internet Week, July 20, 1998.


ONLINE FILE W5.4 Potential E-Procurement Components Module ComponentsCatalog Management Module• Facilitates the creation of products, subassemblies, and components • Catalog manager

in a hierarchical manner. • Catalog exchanger• AVL (Approved Vendor List) editor

Collaborative Planning Module• Supports collaborative planning between buyers and suppliers. • Request for Quote (RFQ)

• Request for Proposal (RFP)• Demand forecaster• Contract manager• Inventory manager• Information flow controller

Online Purchase Module• Supports both systematic and spot procurement for direct and • Purchase via contracts

indirect materials and for contracts (for both goods and services). • Purchase from catalog• Reverse auction service for direct/indirect materials• Reverse auction service for contracts• Auction service

Purchase-Order Handling Module• Enables buyers to place purchase orders via on/off item master, • Purchase order manager

reverse auction, contract purchasing, and spot market requisition. • Demand aggregator• Consignment manager• Just-in-time order manager

Document Service Module• Facilitates a broad range of services for procurement documentation • Document indexing

such as RFQ, RFP, PO, goods receipt, and accounts payable. • SML exchanger• Document version controller

Historical Performance Service Module• Provides easy access to historical statistics of all transactions. • Periodical reports

• Customized reports• Statistical analysis

Information Service Module• Provides a unified information and message service that allows • Message/task center

users to receive/send e-mails and view status of procurement • Status of procurement operationsactivities. • Customized exceptional alerts

• Smart search engine• Online negotiation/discussion service

System Administration Module• Provides tools that enable the company to control procurement • Company master data organizer

activities. • Product group builder• Workflow designer• Authorization matrix• Look and feel designer• User/department profile organizer

Source: Compiled from “e-jing E-Procurement,” e-jing.net/en/solutions/e-procurement.htm (accessed November 2006). Used with permission.


ONLINE FILE W5.5

E-PROCUREMENT AT SCHLUMBERGERSchlumberger is the world’s largest oil service company, withover 50,000 employees in 100 countries and annual sales ofover $10 billion (schlumberger.com). In 2000, the companyinstalled a Web-based automated procurement system inOilfield Services, its largest division. With this system,employees can buy office supplies and equipment, as wellas computers, straight from their desktops.

The system replaced a number of older systems,including automated and paper-based ones. The single systemstreamlines and speeds up the purchasing operation, reducingcosts as well as the number of people involved in the process.It also enables the company to consolidate purchases forvolume discounts from vendors.

The new procurement system gives buyers centralizedcontrol over the entire procurement process and offers acomplete purchase-to-pay solution for MRO items tostrategic-indirect items. This solution improves efficiencyand decreases labor costs by eliminating manual, paper-based processes and providing enterprisewide self-serviceprocurement by:

◗ Eliminating paper-based business documents◗ Reducing maverick spending and generating savings by

enforcing contract-based purchasing◗ Radically reducing PO processing time from days or weeks

to minutes◗ Eliminating the need for additional headcount to support

internal e-procurement◗ Eliminating the need for the buyer’s resources to load and

manage catalogs and price files◗ Integrating ERP or existing accounting systems◗ Integrating ERP for master data such has users, cost cen-

ters, shipping and billing addresses, and organizationalstructures

◗ Providing advanced functionality for streamlined processing◗ Providing standardized purchasing reports by cost center,

supplier, organization, commodity, and others

Prices are negotiated with individual vendors beforetheir items are put into Schlumberger’s system. For example,

Office Depot’s entire catalog is posted on the MarketSite(now part of Product Manager from Perfect.com), butSchlumberger employees only see negotiated products andprices. In 2005, the company planned to negotiate prices inreal time through auctions and other bidding systems.

The benefits of the procurement system are clear. The costof goods has been reduced; transaction costs also have fallen.Employees spend much less time in the ordering process, thusgiving them more time for their core work. The system also ismore cost-efficient for the suppliers, who can then pass alongsavings to Schlumberger. By using one system worldwide,employees who are transferred do not have to learn a newsystem at their new location. Procurement effectivenesshas been increased because it is now possible to track allprocurement activities.

Getting the system up and running was easy because itwas implemented in stages and ran at the same time asexisting systems. Employees did not have to deal withimplementation issues—once the system was in place, theold system was disabled, and there were no complaints withregard to the old system being shut down because it was nolonger in use.

By 2006, the system was used by over 6,000 usersin 83 countries for the procurement of over $2 billionin goods and services each year. The system deliverssignificant cost savings, improved productivity, anderror reduction. The RFQ process and special requestpurchases are now automated, connecting businessprocesses between systems and partners.

Questions1. Describe the benefits of the new system over the

old system.

2. Describe how the e-procurement system operates.

3. Summarize the benefits of e-procurement to thecompany and its employees.

REFERENCES FOR ONLINE FILE W5.5Commerce One. “Schlumberger: Customer Profile.”

commerceone.com/customers/profiles/schlumberger.pdf (no longer available online).

Ovans, A. “E-Procurement at Schlumberger.” HarvardBusiness Review (May–June 2000).

Perfect.com. “Perfect Manager.” 2006. perfect.com/solutions/perfectprocure.html (accessed September2006).

Schlumberger. “Schlumberger Corporate Profile.” slb.com/content/about/who.asp? (accessed September 2006).

ONLINE FILE W5.6

THE PROCUREMENT REVOLUTION AT GENERAL ELECTRICGeneral Electric’s material costs increased 16 percent between 1982 and 1992 (gxs.com 1999).During those same years, GE’s product prices remained flat or for some products evendeclined. In response to the cost increases, GE began an all-out effort to improve its purchas-ing system. The company analyzed its procurement process and discovered that its purchasingwas inefficient, involved too many transactions, and did not leverage GE’s large volumes to getthe best prices. In addition, more than one-quarter of its 1.25 million invoices per year had tobe reworked because the 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 wasthe introduction of an electronic tendering system that started in GE’s Lighting Division.

Factories at GE Lighting used to send hundreds of RFQs to the corporate sourcingdepartment each day, many for low-value machine parts. For each requisition, the accompa-nying blueprints had to be requested from storage, retrieved from the vault, transported tothe processing site, photocopied, folded, attached to paper requisition forms with quotesheets, stuffed into envelopes, and mailed out to bidders. This process took at least 7 days andwas so complex and time-consuming that the sourcing department normally sent out bidpackages for each part to only two or three suppliers.

In 1996, GE Lighting piloted the company’s first e-procurement system, called theTrading Process Network (TPN) Post. With this online system, the sourcing departmentreceived the requisitions electronically from its internal customers and sent off a bid pack-age to suppliers around the world via the Internet. The system automatically pulled thecorrect drawings and attached them to the electronic requisition forms. Within 2 hoursfrom the time the corporate sourcing department started the process, suppliers werenotified of incoming RFQs by e-mail, fax, or EDI. They were given 7 days to prepare a bidand return it electronically to GE Lighting. Then the bid was transferred internally, overthe corporate intranet, to the appropriate evaluators, and a contract could be awarded thatsame day.

Benefits of TPN. As a result of implementing TPN, GE realized a number of benefits:

◗ Administrative labor involved in the procurement process declined by 30 percent. At thesame time, material costs declined 5 to 50 percent due to the procurement department’sability to reach a wider base of competing suppliers online.

◗ GE was able to cut by 50 percent the number of staff involved in the procurementprocess and redeploy the unnecessary workers into other jobs. As a result, the sourcingdepartment had at least 6 to 8 free days a month to concentrate on strategic activitiesrather than on paperwork, photocopying, and envelope stuffing.

◗ It used to take 18 to 23 days to identify suppliers, prepare a request for bid, negotiate a price,and award the contract to a supplier. After implementation of the TPN, it took 9 to 11 days.

◗ With the transaction handled electronically from beginning to end, invoices could beautomatically reconciled with purchase orders, reflecting any modifications that happenedalong the way.

◗ GE procurement departments around the world were able to share information about theirbest suppliers. In February 1997 alone, GE Lighting found seven new suppliers throughthe Internet, including one supplier that charged 20 percent less than the second-lowestbidding supplier.

By 2001, 12 of GE’s divisions were purchasing their nonproduction and MRO materialsover the Internet for an annual total of $6 billion (35 percent of their total procurement).General Electric estimates that streamlining these purchases alone has saved the company$500 to $700 million annually.



THE INCEPTION OF GXSDue to the success of TPN, GE expanded the system, making it a public posting place forother buyers. In 2001, TPN was acquired by GXS Express Marketplaces, which was operatedby GE Global Exchange Services (gxs.com). GXS now operates as a public marketplace onwhich many other companies place RFQs. GXS has over 100,000 trading partners in58 countries, and in 2004 it processed over 1.2 billion transactions valued at over $1 trillion.It is one of the most profitable dot-com companies. In June 2002, it was sold to FranciscoPartners under whose control it continues to operate under the name GXS (gxs.com). GXSalso assumed the EDI services of GE Information Services.

Benefits of GXS. Suppliers in the GXS system can gain instant access to global buyers(including GE) with billions of dollars in purchasing power. In addition, they may dramat-ically improve the productivity of their own bidding and sales activities. Other benefits areincreased sales volume, expanded market reach and ability to find new buyers, loweradministration costs for sales and marketing activities, shorter requisition cycle time,improved sales staff productivity, and a streamlined bidding process.

General Electric reports that the benefits of GXS extend beyond its own walls. As anexample, computer reseller Hartford Computer Group reports that since joining GXS it hasincreased its exposure to different GE business units so that its business with GE has grownby over 250 percent. In addition, GXS has introduced Hartford Computer Group to otherpotential customers.

More generally, the benefits of GXS to purchasing departments include the following:streamlining sourcing processes with current business partners; finding and building partner-ships with new suppliers worldwide; rapidly distributing information, specifications, andelectronic drawings to multiple suppliers simultaneously; and cutting sourcing cycle timesand reducing costs for sourced goods.

DEPLOYMENT STRATEGIES AND CHALLENGESThe GE case demonstrates two deployment strategies for EC initiatives. The first is to startEC in one division (GE started in its Lighting Division) and slowly go to all divisions. Thesecond is to also use the site as a public bidding marketplace to generate commission income.

Even though GE was successful with its e-procurement system, it could not reach its orig-inal plan of 100 percent e-procurement due to connectivity difficulties with SMEs. By 2001, ofits 30,000 suppliers, roughly 25 percent (7,500 suppliers) were performing the critical procure-ment missions on the Web. Another 7,500 or so were connected to GE using the EDI net-works. That left another 15,000 suppliers that relied mainly on manual processes to conductbusiness with GE (Moozakis 2001). (Connecting with SMEs is a common challenge in B2Bimplementation.)

REFERENCES FOR ONLINE FILE W5.6gxs.com (accessed November 2006).Moozakis, C. “GE Scales Back.” Internet Week, May 10,

2001. internetweek.cmp.com/newslead01/lead051001.htm (accessed November 2006).

Trading Process Network. “Extending the Enterprise:TPN Post Case Study—GE Lighting.” Trading ProcessNetwork, 1999. tpn.geis.com/tpn/resource_center/casestud.html (accessed January 2000).


ONLINE FILE W5.7

UNITED TECHNOLOGIES USES A THIRD-PARTYAUCTIONEER: FREEMARKETSImagine the following scenario: United Technologies Corp.needs suppliers to make $24-million worth of circuit boards.Twenty-five hundred suppliers, whose names were found inelectronic registries and directories, were identified aspossible contractors. The list of possible suppliers was sub-mitted to FreeMarkets (ariba.com), a third-party auctioneer.Experts at FreeMarkets reduced the list to 1,000 based onconsiderations ranging from plant location to the size of thesupplier. After further analysis of plant capacity and cus-tomer feedback, the list was further reduced to 100. Adetailed evaluation of the potential candidates resulted in50 qualified suppliers, who were then invited to bid. Those50 suppliers received a password to review the circuit boardspecifications online.

A 3-hour auction of online competitive bidding wasconducted. FreeMarkets divided the job into 12 lots, each ofwhich was put up for bid. At 8:00 a.m. the first lot, valuedat $2.25 million, was placed online. The first bid was$2.25 million, which was seen by all bidders. Minutes later,another bidder placed a $2.0 million bid. Using the reverse auc-tion approach, the bidders further reduced their bids. Minutes

before the bid closed, at 8:45 A.M., the 42nd bid, which wasfor $1.1 million, was received. No other bids were received.When the bidding ended, the bids for all 12 lots totaled $18million (about a 35 percent savings to United Technologies).

To finalize the process, FreeMarkets conducted a com-prehensive analysis of several of the lowest bidders of eachlot, attempting to look at other criteria in addition to price.Based on the bid amount as well as other factors,FreeMarkets then recommended the winners and collectedits commission fees. (For more on e-procurement at UnitedTechnologies, see Britton 2000.) Freemarkets is now adivision of Ariba.com.

Questions1. What type of auction is this?

2. What role does FreeMarkets play in the procurementprocess?

3. Why would a large company such as UnitedTechnologies need an intermediary?

REFERENCES FOR ONLINE FILE W5.7Britton, K. “E-Procurement at United Technologies.”

Business 2.com, November 14, 2000.FreeMarkets. freemarkets.com, 1999 (accessed October

2002). Now ariba.com (old files are no longer available).

Jahnke, A. “How Bazaar.” CIO Magazine, August 1, 1998.


Online File W5.8 E-Negotiation Systems

E-negotiation systems (ENSs) started in the mid-1990s with efforts such as Kashah and Tate-@-Tate from MIT.Each year, 40 universities in 21 countries competed in an international e-negotiation tournament (e.g., see interneg.org)

and enegotiation.org). The following are some negotiating agents.

WebNSWebNS is a Web-based negotiation process support tool that has been tested in several experiments: Complex labor union andmanagement negotiation in comparison with face-to-face meetings; online mediation using a case of resolving conflict betweena consumer and a company; and multimedia negotiation using a case of remote house purchase negotiation. To make it morereliable and suitable to run anywhere in an e-negotiation tournament, WebNS has been reprogrammed by using JSP on an IBMWebSphere server. The system still needs further improvements.

NegoisstNegoisst is a negotiation support system that combines communication management with document management. It enablescomplex dynamic negotiations between human negotiators, guides them through the complex negotiation process, and providessupport rather than an automation of negotiations. Users are allowed to specify preferences on both a discrete and a continu-ous scale, and each (counter-) offer is then evaluated based on the specific preferences. New negotiation items can also beadded to lead to a reassessment of preferences.

SimpleNSSimpleNS (invite.concordia.ca/inspire/about.html) has been developed for teaching and conducting comparative studies on theuse and effectiveness of different ENSs. A virtual negotiation table allows users to exchange offers and messages. The systemdisplays the negotiation case and other information required to conduct the negotiation, presents a form for users to writemessages and offers, and shows the negotiation history in which all messages and offers are displayed in one table thatincludes a time-stamp.

e-Agorae-Agora is an experimental marketplace that allows buyers and sellers to engage in multi-issue negotiations. Protocols are basedon a negotiation phase model and implemented in the system. The purpose is to use e-Agora in the study of behavioral,commercial, and social aspects of e-marketplaces and e-negotiations. e-Agora services include a software agent, a proactive assis-tant to the users, which has three main objectives: (1) identifying alternative offers that the user may find attractive; (2) cri-tiquing an offer that the user is considering for submission; and (3) critiquing an offer that the user receives from an opponent.

The initial assessment of e-Agora was based on a small-scale usability testing with two groups of participants. One groupconducted negotiations with the support of the agent, the other without. The preliminary results show that 92 percent of theparticipants are in favor of employing e-Agora to buy and sell products over the Web, and 83 percent stated the agent providedhelpful advice and suggestions in their negotiations. Successful negotiations increased by 17 percent overall, and the partici-pants requested additional services from the agent, including the suggestion of possible negotiation strategies, enhanced offercritiques, and partial negotiation automation.

InviteInvite (InterNeg virtual integrated transaction environment) is a software platform capable of facilitating, supporting, and aid-ing e-negotiations. Its present purpose is to provide a highly customizable and flexible environment for bilateral negotiation. Itmay be used either when the Invite manager specifies the negotiation problem and process prior to the negotiation or whenthe negotiation problem and process are defined during the negotiation.

Other AgentsSeveral other negotiation agents also are available, including Inspire, MeetingOne, Smartsettle (smartsettle.com), andFamilyWinner. For details, see enegotiation.org.


ONLINE FILE W5.9

FROM TRADITIONAL TO INTERNET-BASED EDIThe vast majority of B2B transactions are supported by EDI, XML, and extranets. Herewe describe EDI and its transition to the Internet platform. Extranets are covered inAppendix 6A.

TRADITIONAL EDIEDI is a communication standard that enables the electronic transfer of routine documents,such as purchasing orders, between business partners. It formats these documents accordingto an agreed-upon structure. An EDI implementation is a process in which two or moreorganizations determine how to work together more effectively through the use of EDI. Forother organizations, it is an internal decision spurred by the desire for competitive advantage.EDI is basically a computer-to-computer messaging system with a minimum of humanintervention. For a comparison of EDI versus no EDI, see Exhibit W5.9.1.

EDI often serves as a catalyst and a stimulus to improve the business processes that flowbetween organizations. It reduces costs, delays, and errors inherent in a manual document-delivery system:

◗ Business transaction messages. EDI primarily is used to electronically transfer repeti-tive business transactions. These include purchase orders, invoices, credit approvals,shipping notices, confirmations, and so on.

◗ Data-formatting standards. Because EDI messages are repetitive, it makes sense to useformatting (coding) standards. Standards can shorten the length of the messages andeliminate data entry errors because data entry occurs only once. EDI deals with standardtransactions, whereas e-mail is more open. EDI uses a special standard language and issecure, whereas e-mail is not. When a user enters data into the EDI system, the data areautomatically converted to EDI language. If there are missing or incorrect data, the EDIconverter offers assistance. EDI fosters collaborative relationships and strategic partner-ships. In the United States and Canada, data are formatted according to the ANSI X.12standard or the UCS code. An international standard developed by the United Nationsis called EDIFACT (see bambooweb.com).

◗ EDI translators. An EDI translator automatically translates data. The software orga-nizes information into a standard format.

EDI has been around for about 30 years in the non-Internet environment. To distinguishit 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 thehospital’s information systems into an EDI station that includes a PC and an EDI translator.From there, the information moves, using a modem if necessary, to a value-added network(VAN). The VAN transfers the formatted information to a vendor(s), where an EDI transla-tor 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 costof about $70 per order. The Health Industry Business Communication Council estimatesthat EDI can reduce this cost to $4 per order—generating yearly savings of $840,000 perhospital. The required investment ranges between $8,000 and $15,000, which includespurchase of a PC with an EDI translator, a modem, and a link to the mainframe-basedinformation system. The hospital can have two or three ordering points. These areconnected to a value-added network (VAN), which connects the hospital to its suppliers


(see Exhibit W5.9.2). The system also can connect to other hospitals or to centralized jointpurchasing agencies.

APPLICATIONS OF TRADITIONAL EDITraditional EDI has changed the business landscape, triggering new definitions of entireindustries. It is used extensively by large corporations, sometimes in a global network, such asthe one operated by General Electric Information System (which has over 100,000 corporateusers). Well-known retailers such as Home Depot and Wal-Mart would operate very differ-ently without EDI because it is an integral and essential element of their business strategies.Thousands of global manufacturers, including Procter & Gamble, Levi Strauss, Toyota, and

EXHIBIT W5.9.1 Purchase Order (PO) Fulfillment With and Without EDI

Purchasing

Accounting/Finance

Mail Room

Order Fulfillment

Accounting/Finance

Mail Room

Sales

PaymentDelivery

Order ConfirmationBill Delivery

P.O.Delivery

Receiving Order Fulfillment

P.O.Standardized

P.O. Form

Start

Order Placer

ShippingReceiving

Buyer

Shipping

Seller

Without EDI

ProductDelivery

Buyer

Shipping

Seller

With EDI

ProductDelivery

P.O.

Start

DepartmentalBuyer

EDI Converter

Computer ConvertorGeneratesStandardizedP.O. Form

InstantData to• Sales• Inventory• Manufacturing• Engineering

Invoice FlashReport


Unilever, have used EDI to redefine relationships with their customers through suchpractices as quick-response retailing and just-in-time ( JIT) manufacturing. These highlyvisible, high-impact applications 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 infor-

mation quickly around the globe.◗ Computer-to-computer data transfer reduces the number of errors.◗ Information can flow among several trading partners consistently and freely.◗ Companies can access partners’ databases to retrieve and store standard transactions.◗ EDI fosters true (and strategic) partnership relationships because it involves a commit-

ment 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 manufactures, 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 setof adopters represented only a small fraction of potential EDI users. In the United States,where several million businesses participate in commerce every day, fewer than 100,000 com-panies have adopted traditional EDI. Furthermore, most of these companies have had only asmall number of their business partners on EDI, mainly due to its high cost. Therefore, in

EXHIBIT W5.9.2 How EDI Cuts the Cost of Ordering Supplies

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


reality, few small or medium businesses have benefited from EDI. The major factors thatheld 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, translationsoftware, and VANs—is not suitable as a long-term solution for most corporations. Therefore,a better infrastructure was needed; Internet-based EDI is such an infrastructure. For details, seeHarris and Chen (2006).

INTERNET-BASED EDIInternet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the caseand review the various types of Web-based EDI.

WHY INTERNET-BASED EDI?When considered as a channel for EDI, the Internet appears to be the most feasible alterna-tive for putting online B2B trading 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. Itslargest attribute, large-scale connectivity (without the need for any special company net-working architecture), is a seedbed for growth of a vast range of business applications.

◗ The Internet’s global network connections offer the potential to reach the widestpossible number of trading partners of any 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, particu-larly via the Web.

◗ Internet-based EDI can complement or replace many current EDI applications.◗ 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 search engine capabilities (see Boucher-Ferguson 2002).

A comparison of the traditional EDI and Internet-based EDI is provided inExhibit W5.9.3.

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 the messages within Secure Internet Mail Extension(S/MIME) have been established.

◗ A company can create an extranet that enables its trading partners to enter informationinto a Web form, the fields of which correspond to the fields in an EDI message ordocument.


EXHIBIT W5.9.3 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.• 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 off-line, 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 manufactures, shippers, and warehouses almost in real time.• EDI can save companies a considerable amount of money.

◗ Companies can use a Web-based EDI hosting service in much the same way that com-panies rely on third parties to host their EC sites. Netscape Enterprise is an example ofthe type of Web-based EDI software that enables a company to provide its own EDIservices over the Internet. Harbinger Express is an example of a company that providesthird-party hosting services.

◗ Internet-based EDI is frequently XML based to ease integration among businesspartners.

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 servesas a cheaper alternative transport mechanism. For a discussion, see Witte et al. (2003). Thecombination of the Web, XML, and Java makes EDI worthwhile even for small, infrequenttransactions. Whereas EDI is not interactive, the Web and Java were designed specifically forinteractivity 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 traditionalEDI. In just a short time after the transition to Web-based EDI, the company wasable to average 35,000 transactions. The system helped the company to growrapidly.

◗ Tradelink of Hong Kong was successful in recruiting only several hundred of thepotential 70,000 companies to a traditional EDI that communicated with govern-ment agencies regarding export/import transactions. In 2001, Tradelink’s Internet-based system had thousands of companies registered, and hundreds were being addedmonthly.

◗ Atkins Carlyle Corp., which buys from 6,000 suppliers and has 12,000 customers inAustralia, is a wholesaler of industrial, electrical, and automotive parts. The large suppli-ers were using three different EDI platforms. By moving to an Internet-based EDI, thecompany is able to collaborate with many more business partners, reducing transactioncosts by about $2 per message.

◗ Procter & Gamble replaced a traditional EDI system that had 4,000 business partnerswith an Internet-based system that has tens of thousands of suppliers.

Note that many companies no longer refer to their collaborative systems as EDI.However, the properties of EDI are embedded into new e-commerce initiatives such ascollaborative commerce and electronic exchanges.


REFERENCES FOR ONLINE FILE W5.9Boucher-Ferguson, R. “Writing the Playbook for B2B.”

Wilson Internet, January 29, 2002.Harris, A. L., and C. Chen. “Traditional and Internet EDI

Adoption Barriers,” in Khosrow-Pour (2006).Khosrow-Pour, M. (ed.). Encyclopedia of E-Commerce,

E-Government, and Mobile Commerce. Hershey, PA:Idea Group Reference, 2006.

Witte, C. L., M. Grünhagen, and R. L. Clarke. “TheIntegration of EDI and the Internet.” Information SystemsManagement (Fall 2003).

ONLINE FILE W5.10

XML UNIFIES AIR CARGO TRACKING SYSTEMTradeVan Information Services of Taiwan provides informationservices about the cargo flights of different airlines. As such,it can be classified as a B2B intermediary. Because differentairlines have different information systems, the query resultsfrom each airline differ in format. XML can facilitate dataexchange between such heterogeneous databases. A specialapplication was developed by Li and Shue (2003) to unifydifferent document presentations for cargo status informa-tion in Taiwan. In addition, the information can be presentedon WAP-based cell phones.

Shippers and receivers can use the system to track thestatus of deliveries. Prior to the installation of the system,an air cargo shipment spent 80 percent of its transport timewaiting and only 8 percent in the air. The new system isexpected to reduce delays significantly, to the benefit of allmembers of the supply chain.

The system offers a uniform cargo status inquiry, andit answers queries with a standardized presentation, whichcan be personalized to offer each airline the particular

information it wants. Such standardization enables customsbrokers to reduce cycle time by preparing declarations ofimports faster. Buyers and other supply chain partners canschedule production lines with precision in advancebecause they can more accurately anticipate the time itwill take imports to clear customs. Finally, the quality ofdoor-to-door delivery companies such as FedEx and UPScan be improved due to quick communication betweenshippers and delivery companies. A fast delivery of infor-mation in standardized format is helping to improve thesupply chain by reducing both delivery lead times andinventory levels.

Questions1. What problem does XML solve?

2. What are the benefits of this system to shippers andreceivers?

REFERENCES FOR ONLINE FILE W5.10Li, S. T., and L. Y Shue. “A Study of Logistics Infomediary

in Air Cargo Tracking.” Industrial Management andData Systems 103, no. 1 (2003).

tradevan.com.tx (accessed January 2001).


Online File W5.11 XBRL: Extensible Business Reporting Language

USAA GAAP TaxonomyStandards

Financial Data

Validateand Publish

Output

Distribution,Consumption

Sources: ERP Databases Files

Information Generation

Company Extension Taxonomy

XBRL DocumentsAnalysts

Regulators

PublicInvestors

Financial Institutions

EXHIBIT W5.11.1 How XBRL Works

XBRL (eXtensible Business Reporting Language) is an international standard for electronic transmission of business andfinancial information. As of September 2005, companies can use it to file financial reports electronically to the SEC and FDIC.With XBRL, all the company’s financial data are collected, consolidated, published, and consumed without the need to use Excelspreadsheets. The use of XBRL enables government analysts to validate information submitted in hours instead of 2 to 3 weeks.For details, see Malykhina (2006).

Figure W5.11.1 illustrates how XBRL works.

According to Malykhina (2006), the Federal Financial Institutions Examination Council found that XBRL helps banks:

◗ Generate cleaner data, including written explanations and supporting notes◗ Produce more accurate data with fewer errors that require follow-up by regulators◗ Transmit data faster to regulators and meet deadlines◗ Increase the number of cases and amount of information that staffers can handle◗ Make information available faster to regulators and the public◗ Address issues and concerns in their filings rather than after the fact

Malykhina, E., “XBRL: More than a Must-Do.” InformationWeek, May 29, 2006.

REFERENCE FOR ONLINE FILE W5.11
