Business to Business Exchange

1. Business to Business Exchange Overview 3 Case Studies Best Practices Conclusions

2. B2B Overview Background What are Business-to-Business Exchanges? • Central, electronic marketplaces matching buyers & sellers • One-to-Many model How big of a player are they? • Estimated U.S. revenues of $600 billion to $3 trillion by 2003. Journal of Internet Law, April 2002, v5, p.10, “B2B Exchanges: Lesson from the Trading Pit”, Stephen J. Davidson, Daniel M. Bryant.

3. B2B Overview Background How big of a player are they?

4. B2B Overview Background How big of a player are they?

5. B2B Overview Background How big of a player are they?

6. B2B Overview Types of B2B What are the types of exchanges? Generally there are two types. • Horizontal • Vertical

7. B2B Overview Types of B2B Horizontal: • Provide products and services that are non-specific to a particular industry. • Benefits: variety of products offered and lower prices. • Examples: office supplies, travel services. Vertical: • Provide products and services specific to a particular industry. • Benefits: provide specialized products, in-depth industry knowledge, and greater opportunity for collaboration. • Examples: aerospace, automotive. Information Systems Management, Spring 2001, Vol. 18, Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.

8. B2B Overview Types of B2B

9. Buyer RFP Supplier Bid Selected Supplier Buyer Accept Buyer Goods Payment Supplier B2B Overview B2B Process Conventional Process (Old Way) Bidding Sequence Proposal Acceptance Transaction Complete Information Systems Management, Spring 2001, Vol. 18. Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.

10. B2B Overview B2B Process Exchange Process (New Way) RFPs submitted and bids made EXCHANGE Buyer 1: RFP Supplier A Bid Buyer 2: RFP Supplier B Bid Buyer 3: RFP Supplier C Bid EXCHANGE Buyer 1: Best Bid Supplier C: Payment less commission Buyer 1: Payment Information Systems Management, Spring 2001, Vol. 18. Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.

11. Business to Business Exchange Overview 3 Case Studies Best Practices Conclusions

12. PetroCosm Background • Company Overview • B2B online exchange for the oil and gas industries – Launched on January 19, 2000 • Goods and Services offered on the exchange • Players Involved in the Exchange • How was PetroCosm funded? • Chevron, Crosspoint, and Texaco www.rigzone.com www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000

13. PetroCosm Background “Our goal is to establish a truly independent, neutral market that ensures the interests of both buyers and sellers equally, while also addressing the needs of an international business.” • Norman Chambers (CEO) www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000

14. Product & Service Solutions • Procurement, auctions, consulting, community integrations, web/application services, and business process and customer relations management tools • How did PetroCosm make money? www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000

15. Participants Chevron—Major Contributor • Chevron’s e-procurement program – prior • David Clementz – Chevron’s IT President • Target of Chevron • Expectations of Chevron • Access more suppliers and business units • Cut costs of materials and services by $200 million www.eyeforenergy.com “The Premier E-Business for Energy”, Brian Davis.

16. Participants Technology Partners • Ariba Inc. • Software developer and e-commerce provider • Requisite Technology • Provided the content management system (Online Catalog – 800,000 units in 6 months) • Search engine – “Bugseye” www.business2.com “PetroCosm E-Catalog Offers 1 Million Items For Oil & Gas Industries”, February, 2001

17. Participants Technology Partners • BuzzPower e-community • Owned by Multex.com, BuzzPower provided community messaging and collaboration for the exchange. • Allowed members to participate in discussions with other buyers and sellers on a wide range of topics. http://industry.java.sun.com “PetroCosm Selects Multex.com’s BuzzPower E-Community Software for New Digital Exchange”, August, 2000

18. Participants Technology Partners • KPMG Consulting and eValuation • Return on Investment Model • Convince customers to use the system • Variables used in the model • Results of the model • Save 5 to 20 percent of procurement costs http://proquest.umi.com “Services Calculated Net ROI”, August, 2000

19. Case Study Conclusions PetroCosm Strengths • Operational Efficiency • Buyer Advantage • Reduce costs, faster transactions, and closer customer relationships • Negotiation power • Level playing field for companies of all sizes • Seller Advantage • Expand consumer base, develop new markets, and reduce costs www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000

20. Case Study Conclusions PetroCosm Weaknesses • Sellers (suppliers) did not see significant benefit from the exchange • The systems are too focused on the buyer – too many sellers compared to buyers • The value and volume of the majority of the deals was low • Reverse auctions are timely and expensive to set up – Benefit the buyer http://lexis-nexis.com “E-Rethink Time as PetroCosm Partners Lick their Wounds”, July, 2001

21. Case Study Conclusions Why did PetroCosm Fail? • PetroCosm’s financial position at breakup • $86 million in debt / $24 million in assets • CH 11 bankruptcy was filed on June 14, 2001 • Too much confidence in technology • Focused solely on R&D • Needed to be more customer oriented www.line56.com “PetroCosm Folds”, April, 2001 http://news.com.com “Chevron-Backed Net Exchange Shuts Down”, April, 2001

22. Case Study Conclusions Why did PetroCosm Fail? • Competitive pressures • Trade-Ranger – Another B2B online oil exchange • Exchange had more buyers (14 at PetroCosm’s breakup) • Lack of Confidence From Investors • Lack of liquidity • Chevron and Texaco – only two major buyers • Dot-com Collapse – 2000 www.thestandard.com “Failed Marketplaces, Not Deterring Businesses”, May, 2001

23. UBS Warburg Background • Wholesale energy trading based out of Houston, TX • Natural Gas • Power Products

24. UBS Warburg Background • Founded in February 2002 by UBS AG • One of the worlds largest and best capitalized banks • Based in Switzerland • Approx. 70,000 employees in 40 countries • AA+ Standard & Poor’s long-term debt rating www.ubswenergy.com

25. UBS Warburg Background Acquisition Terms • Through Enron with a 10 year profit sharing plan • Acquired over 600 of Enron's employees and many executives • Rights to patents, licenses, office space, and IT infrastructure www.ubswarburg.com

26. Enron Failed!!! “Enron failed because they were scamming, but the basic virtual market part was fine.” “There is still a real market for virtual trading companies, no question about it.” Dale Kutnick Chief Executive and Research Director META Group (an information tech. consultancy) http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm

27. Business Model • Principle in every transaction • Spread between sell and buy Jennifer Walker, spokesperson for UBS Warburg, interviewed by phone by David Seevers, October 17,2002.

28. Technology • Internet (www.ubswenergy.com) • Phone • Fax

29. Case Study Conclusion “In any commodity, there are always people who have too much and others that have too little, so there’s always going to be a need for them to trade and exchange,” Professor Tufano http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm

30. Case Study Conclusions Was UBS Energy a Success? UBS Energy Weaknesses • Slow start due to Enron link • Industry downturn • Down 70% from a year ago • Federal Investigations (trading practices) • Over 130 employees laid off recently • Competition http://www.platts.com/pressroom/wsj819.shtml

31. Case Study Conclusions UBS Energy Strengths • Reputation • Highly regarded parent company • No capital investment required • Systems acquired from Enron

32. Covisint Background • Conception: • February, 2000; First Transaction in October, 2000 • Membership: • Open to entire automotive industry • Vision: • To use the Internet to increase value & efficiency to all suppliers and OEM’s through collaboration, visibility, & integration. www.covisint.com

33. Co-Collaboration Vis-Visibility Int-Integration Covisint Background www.covisint.com

34. Supplier Participants: approx. 5000 Participants • OEM Founders: www.covisint.com

35. Technology Providers: Participants • Technology Partners:(with an equity stake) www.covisint.com

36. Product & Service Solutions Product Life Cycle Service Categories www.covisint.com

37. Product Development Solutions • Collaboration enabled by Virtual Project Workspace • Facilitates communication between suppliers & OEM’s • Benefits • Decreases product development time • Decreases design costs • Shortens sourcing process www.covisint.com C. Koch, “Motorcity Shakeup” Darwin, Jan 2002

38. Procurement Solutions • Quote Manager: • Electronic RFQ process • Benefits: reduction in costs, delays, & errors • Custom Catalogs: • Electronic availability of products • Benefits: • 73% reduction in transaction costs • 74% reduction in processing time • Nearly 100% order accuracy www.covisint.com

39. Procurement Solutions • Asset Control • Re-allocation and buying/selling resources • Benefits: Allows user to identify, appraise, categorize, track, re-deploy, & sell assets • Buyer Auctions • Enables one-to-many negotiations • Benefits: • 72% process reduction • 5-30% price savings • 400% average ROI www.covisint.com

40. Procurement Solutions Buyer Auction www.covisint.com

41. Supply Chain Solutions • Enables inventory visibility & information flow between suppliers and OEM’s • Benefits: • 30-70% reductions in inventories • 50-90% savings in premium freight costs • 40-80% reduction in administrative costs • 50-80% reduction in downtime www.covisint.com

42. Business Model • Standard pricing for each product/service • Product DevelopmentSubscription Fees • Procurement Services  Per Event Fees • Supply Chain  Commission Fees Subscription Fees www.covisint.com

43. $65 million in revenues (2001) Ranked 5th by InfoWorld for use of creative technologies to generate revenue Case Study Conclusions Is Covisint a Success? • Predict profit by 2003 • 15-25% of OEM purchases • 5000 participants U. Balasubramanian, M. Diab, K. Mabry, D. Moore, “Information Visibility Nondifferentiated Products” Marketing News, 2002. D. Arminas, “The Mother of E-Marketplaces: Will It Pass the Test?” Supply Management, May 2002.

44. Case Study Conclusions Is Covisint a Success? “Many people said it would never be possible to procure complex parts over Covisint, but we have proved that it not only is possible, but that we can save a great deal of time and money doing so.” Wolfgang Scheunemann, DaimlerChrysler U. Balasubramanian, M. Diab, K. Mabry, D. Moore. “Information Visibility Nondifferentiated Products”Marketing News, 2002

45. Case Study Conclusions • Covisint Strengths • Support from Big 3 OEM’s • Common system: same to deal with all OEM’s • Covisint Weaknesses • Support from suppliers • Anti-trust hurdles • Competition T. Murphy, “New CEO: No More Cash for Covisint” Ward’s Auto World, Aug 2002. D. Arminas, “The Mother of E-Marketplaces: Will It Pass the Test?” Supply Management, May 2002.

46. Business to Business Exchange Overview 3 Case Studies Best Practices Conclusions

47. B2B Best Practices – What Experts Say “Efficiency and Customer Retention are still the key” - David Yockelson and Aaron Zornes Source : B2B supply chain best practices in ZDNet

48. B2B Best Practices – What Experts Say (Continued) . According to Rathin Sinha , Dir of E-Com at Kinko’s . B2B leaders should integrate their Business process to develop synchronized solutions. According to John MacDuffie and Susan Helper , Professors of Management . B2B will be "evolutionary" rather than "revolutionary" Source : http://www.anderson.ucla.edu/research/cmie/images/Sinha.pdf

49. B2B Best Practices – Research Five potential sources of performance improvement Research by John Paul MacDuffie, prof. at Wharton Management and Susan Helper, prof. of economics at Case Western Reserve University • Automate the procurement process – Reduction in Paperwork always reduces Costs • Increase Interoperability – Facilitate Easy communication by using XML, a computer language for EDI Source : The Evolution B2B from Knowledge@Wharton Upcoming book “The Global Internet Economy”

50. B2B Best Practices – Research (Continued) • Use Auctions : Online auctions have a tremendous potential to reduce prices, as large numbers of suppliers compete for contracts. • Collaborative planning : Major savings can be achieved if plants in the supply chain can quickly view each others' inventory levels and production schedule and plan accordingly. • Collaborative design : Address the difficulties in linking proprietary software in different companies allowing Designers to work concurrently.