B2B e-Commerce Valuation: Exploring the Role of Process and Organizational Factors

1. B2B e-Commerce Valuation:Exploring the Role of Process and Organizational Factors Michael J. Shaw Department of Business Administration University of Illinois at Urbana-Champaign

2. Value of B2B E-Commerce As Web-enabled B2B e-commerce is been increasingly implemented… • What is the value of B2B e-commerce to an enterprise? How to measure this value? • What factors most affect the realization of the potential value of B2B e-commerce?

3. Web-based Procurement System

4. INVOICE INVOICE Requisition Creation Approval Cycle Product & Process Development P.O. Generation Concept to Check eProcurement Supplier Communications Advance Ship Notice Payment Receipt of Goods/Services Invoice

5. Research Questions • What is the value of Web-based procurement to an organization? How do we measure this value? • What conditions affect the realization of the value? What are the relative importance of each of these conditions? …in need of both empirical and economic analysis

6. Buying patterns for non-production goods and services with respect to volume and value

7. Observations from a Field Study For unstructured processes, such as unplanned procurement, the most value of Web-based procurement comes from process savings For structured processes, such as planned procurement, the most value of Web-based procurement comes from inventory savings

8. Observations from a Field Study Web-enabling moderately complex purchases provides the greatest value

9. Valuation framework B2BE-Procurement System B2B process Process typeProcess complexity Organization of business units SizeDominant process type Change in centralization Price Benefits Transaction Cost Savings Technology Lock-in Costs Value ofB2B E-Procurement Extended enterprise IntegrationParticipationFragmentation

10. Economic Valuation Model • Total economic value (V) is given as Price benefits + Transaction cost benefits – Technology lock-in costs

11. Effects of • Procurement Types • Process Complexity • Degree of Centralization • Fragmentation of Suppliers

12. Demand = high Demand = low Unstructured, unplanned Complex Greater Centralization Higher Fragmentation

13. Effects of Process Complexity+Procurement Type • Among simple procurement processes, Web-enabling unstructured procurement (significantly) provides greater benefits (think MROs!) • Among complex processes, Web-enabling structured procurement provides (slightly) greater benefits

14. Effects and Centralization+Procurement Type (a) Process complexity = low (b) Process complexity = high • At low complexity, change in centralization has a greater impact on unstructured procurement and almost no impact on structured procurement (as seen in the decreasing needs for computer central store) • For more complex processes, neither the procurement type nor the change in centralization has any significant impact on the level of benefits

15. Effects of Complexity+Fragmentation (a) Process complexity = low (b) Process complexity = high • When the process complexity is low, the Web benefits are significantly affected by the type of procurement, but not by the fragmentation • When the process complexity is high, the Web benefits are significantly affected by fragmentation in the supply chain, but not by the type of procurement (e.g., specialized machine tools)

16. Empirical Studies Economic Analysis  eProcurement Strategy • Observation: One user dealing with unplanned procurement spent 80% of her time in resolving errors and mismatches, while another user dealing with planned procurement spent less than 20% of her time in error resolution • Analysis results:A Web-based procurement system is of more value to the first type of user than the second • Observation: A procurement manager at a large manufacturing facility was not convinced of the benefits of Web-based procurement as the existing processes were very streamlined and efficient • Analysis results: The value of Web-based procurement for this business unit lies in Web-enabling complex procurement dealing with fragmented supply chain, not by Web-enabling the planned processes

18. Transformations • B2B process • Key business processes are centralized for better visibility and control, while end-user services are decentralized for more personalized experience • Organizational roles • Some administrative and logistics support functions are eliminated • Corporate B2B function is transformed from administrative/operational role to consultative/strategic role • The values of eProcurement vary, affected by Product, process, and organizational characteristics