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ELC 200 Day 15

ELC 200 Day 15. Agenda. Questions from last Class? Assignment 4 due March 27 Assignment 5 will be posted this weekend Quiz two on March 27 Chaps 4-6 M/C and Short Essays Same format as before Today we will be talking about Public B2B exchanges. Consortium Trading Exchanges (CTE).

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ELC 200 Day 15

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  1. ELC 200 Day 15 Prentice Hall, 2003

  2. Agenda • Questions from last Class? • Assignment 4 due March 27 • Assignment 5 will be posted this weekend • Quiz two on March 27 • Chaps 4-6 • M/C and Short Essays • Same format as before • Today we will be talking about Public B2B exchanges Prentice Hall, 2003

  3. Consortium Trading Exchanges (CTE) • CTE (consortium)—an exchange formed and operated by a group of major companies to provide industry-wide transaction services • Vertical, purchasing-oriented • Horizontal, purchasing-oriented • Vertical, selling-oriented • Horizontal, selling-oriented Prentice Hall, 2003

  4. Purchasing-Oriented (Procurement) Consortia • E-Procurement Consortia can be: • Vertical purchasing-oriented • All the players are in the same industry • Support buying and selling • Horizontal purchasing-oriented • Owner-operators are large companies from different industries • Improving the supply chain Prentice Hall, 2003

  5. Covisint • Covisint—e-market of automotive industry • B2B integrated buy-side marketplace • General Motors • Ford • DaimlerChrysler • Entire industry gains • Lower costs • Easier business practices • Increased efficiency Prentice Hall, 2003

  6. Covisint (cont.) • “Co” stands for • Connectivity • Collaboration • Communication • “Vis” stands for visibility provided by the Internet • “Int” stands for integrated solutions Prentice Hall, 2003

  7. Covisint (cont.) • Collaborative commerce • Facilitate product design • Enable procurement process • Provide broad marketplace of buyers and suppliers • Vertical consortia trading exchange • Few large buyers • Many sellers (suppliers to the industry) Prentice Hall, 2003

  8. Covisint (cont.) • Marketplace’s connectivity integrates buyers and sellers into a single network • Flow of information integrates buyers and sellers into a single network • Visibility provides real-time information for: • Fast decision making • Communication throughout the supply chain, anywhere in the world Prentice Hall, 2003

  9. Covisint (cont.) • Web use allows changes to be sent simultaneously and instantly throughout its entire supply chain • The result: • Less need for costly inventory in the supply chain • Increased ability to respond quickly to market changes Prentice Hall, 2003

  10. Covisint (cont.) • One of the major objectives of the exchange is to facilitate product design: • Offers best-of-breed functionality • Ability to integrate providers across the supply chain creates (collaborative commerce) • Enables e-procurement • Provides broad marketplace of buyers and suppliers • Accesses a wealth of supply chain expertise and experience Prentice Hall, 2003

  11. Consortium Trade Exchanges • Selling-oriented consortia • Vertical exchanges • Thousands of potential buyers within a particular industry • Legal challenges for B2B consortia • Exchanges introduce a level of collaboration among both competitors and business partners • Antitrust and other competition laws must be considered Prentice Hall, 2003

  12. Critical Success Factors of Consortia • Size of industry • Ability to drive user adoption • Elasticity—measure of incremental spending by buyers as a result of savings generated • Standardization of commodity-like products • Management of intensive information flow • Smoothing inefficiencies in supply chain Prentice Hall, 2003

  13. Dynamic Trading • Dynamic trading—exchange trading that occurs in situations when prices are being determined by supply and demand (dynamic pricing) Supply & Demand Prentice Hall, 2003

  14. Dynamic Trading:Auctions and Matching • Matching • Market makers conduct matching supply and demand (e.g., stocks) • More complex than auctions because they match: • Prices • Quantities • Times • Locations • Most stock exchanges work on matching Prentice Hall, 2003

  15. Dynamic Trading:Auctions and Matching • Auctions • Private trading rooms—members conduct auctions at the exchange • Auction services may be one of the activities • Exchange may be fully dedicated to auctions • Can conduct many-to-many public auctions Prentice Hall, 2003

  16. New Entrant to the Dutch Flower Market: TFA • Dutch auctionmethod Were semi-automated • Buyers and sellers went to one location to see the flowers • Auctioneer used a clock with a large hand set at a high price • Price dropped as the time ticked off on the clock • Until clock was stopped by pushing an order button • Quantity ordered was clarified over an intercom , • Process continued until all of the flowers were sold Prentice Hall, 2003

  17. TFA (cont.) • TeleFlower Auction (TFA)—competing electronic auction enables its initiators to penetrate the Dutch flower market • Buyers bid on flowers via their PCs • Designated times • From any location • Auction clock shows on buyer’s PC screen • Clock stopped by pushing space bar • Auctioneer completes sale by telephone Prentice Hall, 2003

  18. TFA (cont.) • Process is much quicker • After-sale delivery is much faster—within half an hour after the sale • Major issue can be the quality of the flowers • Flowers are not physically visible to the buyers • Large amount of relevant information is available • TFA quickly built a competitive advantage using IT Prentice Hall, 2003

  19. TFA (cont.) Prentice Hall, 2003

  20. Exhibit 6.9Comparing the Major B2B Many-to-Many Models Prentice Hall, 2003

  21. Building and Integrating Marketplaces and Exchanges • Step 1—Think ahead • Step 2—Planning • Step 3—System analysis and design • Step 4—Building the exchange • Step 5—Testing, installation, and operation • Step 6—System evaluation and improvement Prentice Hall, 2003

  22. Building and Integrating Marketplaces and Exchanges (cont.) • Integration • Between 3rd-party exchange and back-office systems of participants • Across multiple, incompatible exchanges • External communications • Web/client access • Data exchange • Direct application integration • Shared process Prentice Hall, 2003

  23. Building and Integrating Marketplaces and Exchanges (cont.) • Process and information coordination—how to coordinate external communications with internal information systems • External process Internal process • Data transformation Exception handling • System and information management—involves management of: • Software • Hardware • Information components Prentice Hall, 2003

  24. Revenue models Transaction fees Fee for service Membership fees Advertisement fees Networks of exchanges “First mover” primary objective is the acquisition of buyers and sellers Integration with other companies or exchanges Some exchanges are beginning to integrate in order to better serve their customers Managing Exchanges Prentice Hall, 2003

  25. Exhibit 6.11Several Exchange, One Supply Chain Prentice Hall, 2003

  26. Managing Exchanges (cont.) • Centralized management • One market builder builds and operate several exchanges • Manages all the exchanges ’catalogs, auction places, discussion forums • Centralizes: accounting, finance, human resources, IT services • Third-party vendors providing logistic services and payment systems are more efficient when supplying services for “families ” of exchanges • VerticalNet (verticalnet.com) • Ventro (nexprise.com) Prentice Hall, 2003

  27. Critical Success Factors • Early liquidity Business’s chance of survival is best when liquidity (volume of business conducted) is achieved early • Right owners • Partner with companies that can bring liquidity to the exchange • Best owner may be intermediary that can push both buyers and sellers Prentice Hall, 2003

  28. Critical Success Factors (cont.) • Right governance • Good management and fair /effective operations and rules are critical • Governance provides rules for the exchange, minimized conflicts, decision making support • Openness • Exchanges must be open to all from organizational and technical point of view • Open standards require universal commitment and agreement on the standards Prentice Hall, 2003

  29. Critical Success Factors (cont.) • Full range of services • Participants are attracted by an exchange that helps cut costs • Exchanges team up with banks, logistic services and IT companies to help • Importance of domain expertise • Market makers need an in-depth understanding of: • The industry • Business processes inherent in the industry • Knowledge of industry structure • Government and policy stipulations Prentice Hall, 2003

  30. Critical Success Factors (cont.) • Targeting inefficient industry processes • Contribute to increased costs and time delays • Vertical exchanges can add value • Targeting right industries • Large base of transactions • Many fragmented buyers and sellers • High vendor and product search/comparison costs • Strong pressure to cut expenses Prentice Hall, 2003

  31. Critical Success Factors (cont.) • Brand building is critical • Increase switching costs by adding features and functionality • Invest in: • Gaining brand awareness • Attracting businesses to exchange • Customer retention Prentice Hall, 2003

  32. Critical Success Factors (cont.) • Exploiting economics of scope • Value-added services make exchange compelling • Industry news • Expert advice • Detailed product specification sheets • Support services • Banks and financial information providers • Identification supported by sophisticated digital certificate architecture Prentice Hall, 2003

  33. Garner diverse and multiple revenue streams Software licensing Advertising Sponsorship Critical mass of users will garner more value-added services Auction services Financial services Business reporting Data mining services Critical Success Factors (cont.) Choice of business/revenue models Prentice Hall, 2003

  34. Critical Success Factors (cont.) • Blending content, community, and commerce • Content and community perspective—stimulate traffic • EC transaction perspective—creates higher level of customer “stickiness” • Managing channel conflict • Hostile phase as buyers interact directly with sellers (disintermediation of supply chain) • Short-term revenues impacted by backlash from existing fulfillment channels result in price erosion affecting medium-term profitability Prentice Hall, 2003

  35. Communication Networks and Extranets for B2B • The Internet—a public, global communications network that provides direct connectivity to anyone over a local area network (LAN) via an Internet service provider (ISP) or directly via an ISP Prentice Hall, 2003

  36. Communication Networks and Extranets for B2B (cont.) • Intranets—a corporate LAN or wide area network (WAN) that uses Internet technology and is secured behind a company’s firewalls • Links various servers,clients,databases,and application programs within a company • Limited to information pertinent to the company Prentice Hall, 2003

  37. Communication Networks and Extranets for B2B (cont.) • Extranets—a network that uses a virtual private network (VPN) to link intranets in different locations over the Internet; an “extended intranet” • Provide secured connectivity between a corporation’s intranets and the intranets of its business partners • protected environment of an extranet allows • Allows partners to securely collaborate and share information Prentice Hall, 2003

  38. Communication Networks and Extranets for B2B (cont.) • Virtual private network (VPN)—a network that creates tunnels of secured data flows, using cryptography and authorization algorithms, to provide secure transport of private communications over the public Internet Prentice Hall, 2003

  39. Exhibit 6.12An Extranet Prentice Hall, 2003

  40. A Network Loaded with Extras: ANX • Automotive Network Exchange (ANX)—an infrastructure for B2B applications • Backed by General Motors, Ford, and Chrysler • Allows companies in the automotive market to: • Swap supply and manufacturing data • Buy • Sell • Collaborate Prentice Hall, 2003

  41. ANX (cont.) • Benefits of ANX • One-to-one and one-to-many connections • Procurement • CAD/CAM file transfers • EDI • E-mail • Group-ware • “Big Three” expect to save millions of dollars • Consolidating communications links • Reduce order turn-around time Prentice Hall, 2003

  42. ANX (cont.) • A VPN for ANX • Most visible B2B implementation of VPNs that run over the Internet • Security—all participants must have tools compliant with (IP) security standards covering • Authentication • Encryption • Encryption key management. Prentice Hall, 2003

  43. Categories of Extranet Benefits • Enhanced communications • Productivity enhancements • Business enhancements • Cost reduction • Information delivery Prentice Hall, 2003

  44. Implementation Issues • Problems with exchanges • High transaction fees Sharing information • Unclear cost savings Recruiting suppliers • Too many exchanges • Difficult to coordinate supply chain process • Private exchanges—e-marketplaces that are owned and operated by an industry giant or a consortium • Problems with private exchanges • Lack of trust • Liquidity is questionable Prentice Hall, 2003

  45. Implementation Issues (cont.) • Software agents in B2B exchanges • Disintermediation • Evaluating exchanges • How much will company really save and/or gain? • Determine viability of the exchange • Contracts and technology that lock into a long-term relationship • Membership—who sits on the board. • Who provides payment, logistics, other services? Prentice Hall, 2003

  46. Support Services for B2B Exchanges • Directory services and search engines • Partner relationship management • Other services: • Trust services Digital photos • Trademark and domain names Client matching • Global business communities Encryption sites • E-business rating sites Promotion programs • Web-research services Prentice Hall, 2003

  47. Managerial Issues • Have we “done our homework?” • Can we use the Internet? • Which exchange? • Will joining an exchange force restructuring? • Will we face channel conflicts? • What are the benefits and risks of joining an • exchange? Prentice Hall, 2003

  48. Summary • E-marketplaces and exchanges defined • The major types of e-marketplaces • B2B portals • Third-party exchanges • Consortium trading exchanges • Dynamic pricing and trading Prentice Hall, 2003

  49. Summary (cont.) • Ownership and revenue models • Exchange networks and management of exchanges • Critical success factors for exchanges • Extranets • E-marketplaces and exchange implementation and development issues • Support services Prentice Hall, 2003

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