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Chapter 6

Chapter 6. Public B2B Exchanges and Support Services. Outline. B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues

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Chapter 6

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  1. Chapter 6 Public B2B Exchanges and Support Services

  2. Outline • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  3. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  4. B2B Electronic Exchanges:An Overview public e-marketplaces (public exchanges) Trading venues open to all interested parties (sellers and buyers); usually run by third parties exchange • A many-to-many e-marketplace. Also known as e-marketplaces, e-markets, or trading exchanges market maker The third-party that operates an exchange (and in many cases, also owns the exchange) S. Kungpisdan

  5. Exhibit 6.1 Trading Communities Market S. Kungpisdan

  6. B2B Electronic Exchanges:An Overview • Classification Of Exchanges vertical exchange An exchange whose members are in one industry or industry segment horizontal exchange An exchange that handles materials used by companies in different industries S. Kungpisdan

  7. Exhibit 6.2 Classification of B2B Exchanges Maintenance, Repair, and Operations (materials used in activities that support production) Purchases involving long-term contracts that usually are based on private negotiations btw sellers and buyers Purchases of goods and services as they are needed, usually at prevailing market prices S. Kungpisdan

  8. Dynamic Pricing dynamic pricing A rapid movement of prices over time, and possibly across customers, as a result of supply and demand • Typical steps in dynamic pricing in most exchanges: • A company posts a bid to buy a product or an offer to sell one. • An auction is activated. • Buyers and sellers can see the bids and offers, but not see who is making them (anonymity) • Buyers and sellers interact with bids and offers in real time. • A deal is struck when there is an exact match btw a buyer and a seller on price, volume, and others variables e.g. location or quality. • Once the deal is done, payment and delivery are arranged. S. Kungpisdan

  9. B2B Electronic Exchanges:An Overview • Functions of Exchanges • Matching buyers and sellers • Facilitating transactions • Maintaining exchange policies and infrastructure S. Kungpisdan

  10. RFP = Request for Proposal S. Kungpisdan

  11. B2B Electronic Exchanges:An Overview • Revenue Models • Transaction fees • Commission paid by sellers for each transaction they make • However, cannot charge very high, need to find other revenue sources • Fee for service • Some sellers prefer to pay service charges rather that transaction fees • Membership fees • Annual or monthly fee to get some free services or discount • Advertising fees • Other revenue sources • Auction fees, license fees for software usage S. Kungpisdan

  12. S. Kungpisdan

  13. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  14. Third-Party (Trading) Exchanges • Third-party exchanges are characterized by two contradicting properties: • They are neutral, because they do not favor either sellers or buyers and • They do not have a built-in constituency of sellers or buyers, they sometimes have a problem attracting enough buyers and sellers to attain financial viability S. Kungpisdan

  15. Third-Party (Trading) Exchanges market liquidity The degree to which something can be bought or sold in a marketplace without affecting its price. • It is measured by the number of buyers and sellers in the market and the transaction volume Different from a portal, 3rd party exchange not only presents catalogs, but also tries to match buyers and sellers and encourages them to make transactions by providing e-trading floors an rooms S. Kungpisdan

  16. Exhibit 6.6 Supplier Aggregation Model May be web-based Need system integration between companies S. Kungpisdan

  17. Exhibit 6.7 Buyer Aggregation Model S. Kungpisdan

  18. Third-Party (Trading) Exchanges • Suitability of Third-Party Exchanges As in other types of e-marketplaces, the most important key to the success of any third-party exchange is the critical mass of buyers and sellers S. Kungpisdan

  19. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  20. Consortium Trading Exchanges consortium trading exchange (CTE) • A subset of 3rd Party Exchange An exchange formed and operated by a group of major companies to provide industry-wide transaction services • Markets operate in three basic types of environments that indicates the third-party exchange that is most appropriate • Fragmented markets: many buyers, many sellers • Life sciences and food industries • 3rd Party Exchange • Seller-concentrated markets: few sellers, many buyers • Plastics and transportation • Consortia • Buyer-concentrated markets: few buyers, many sellers • Automotive, airlines • Consortia S. Kungpisdan

  21. Consortium Trading Exchanges • CTEs are classified by: • Focus on buying or selling • Are vertical or horizontal • The four types of consortia are: • Purchasing oriented, vertical • Purchasing oriented, horizontal • Selling oriented, vertical • Selling oriented, horizontal S. Kungpisdan

  22. Consortium Trading Exchanges • Purchasing-Oriented Consortia • Most popular B2B consortium model • Vertical Purchasing-Oriented CTEs: the players are in the same industry • Horizontal Purchasing-Oriented CTEs: the owner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries • Selling-Oriented Consortia • Most of them are vertical S. Kungpisdan

  23. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  24. Dynamic Trading: Matching and Auctions dynamic trading Exchange trading that occurs in situations when prices are being determined by supply and demand (e.g., in auctions) • Two major mechanisms: matching and auctions • Matching—Buyers place their bids and sellers list their asking prices, the market makers conduct the matching • Auctions—Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms S. Kungpisdan

  25. S. Kungpisdan

  26. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  27. Building and Integrating E-Marketplaces and Exchanges • Building E-Marketplaces Building e-marketplaces and exchanges is a complex process. • It is usually performed by a major B2B software company e.g. Commerce One, Ariba, Orable, or IBM • Management consulting companies e.g. PWC, Gartner Group, or McKinsey • Technology companies e.g. IBM, Oracle, Intel, Microsoft, and SAP S. Kungpisdan

  28. Building and Integrating E-Marketplaces and Exchanges • The Integration Issue • Seamless integration is needed between the third-party exchange and the participants’ front- and back-office systems is necessary • In private exchanges, one needs to integrate: • Sell-side: seller’s computing system with that of the customers • Buy-side: buyer’s system with that of the suppliers S. Kungpisdan

  29. Building and Integrating E-Marketplaces and Exchanges • Four most common elements of B2B integration solutions • External communications • Web/client access • Data exchange • Direct application integration • Shared procedures • Process and Information Coordination • Involves the coordination of external communications and internal information systems • Use of Web Services • Enable different web-base systems to communicate with each other using Internet-based protocols • System and Information Management • Management of software, hardware, and information S. Kungpisdan

  30. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  31. Support Services for E-Marketplaces and PRM • Directory Services and Search Engines Directory services can help buyers and sellers manage the task of finding potential partners • Partner and Supplier Relationship Management partner relationship management (PRM) Business strategy that focuses on providing comprehensive quality service to business partners • Partners: customers, suppliers, joint ventures, service providers, etc supplier relationship management (SRM) A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses S. Kungpisdan

  32. S. Kungpisdan

  33. Exhibit 6.11 SRM from Peoplesoft See Exhibit W6.3 for more details S. Kungpisdan

  34. S. Kungpisdan

  35. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  36. B2B Implementation Issues • Problems with Public Exchanges • Attracting sellers to public exchanges is difficult for these reasons: • Transaction fees • Large suppliers do not want to pay transaction fees when they engage in transactions with their existing customers. • Sharing information • Cost savings • Recruiting suppliers • Large supplier may have their own e-purchasing capabilities for their customers • Too many exchanges • Competitors believe that they can do better job than first movers S. Kungpisdan

  37. B2B Implementation Issues • Supply Chain Improvers • Public exchanges prepare the entire necessary infrastructure and ask suppliers to just “plug in” and start selling • Focusing on supply chain savings rather than on buy/sell savings can be very beneficial to exchanges S. Kungpisdan

  38. B2B Implementation Issues • Problems with Private Exchanges • Private exchanges are usually run by one large company; trust becomes an issue S. Kungpisdan

  39. Roadmap • B2B Electronic Exchanges Overview • Third-party Exchanges • Consortium Trading Exchanges • Dynamic Trading • Building and Integrating E-marketplaces • Support Services for E-marketplaces and PRM • B2B Implementation Issues • Managing Exchanges S. Kungpisdan

  40. Managing Exchanges • Centralized Management • Managing exchanges and providing services to participants on an individual basis is very expensive • So, “families” of jointly-managed exchanges are more cost-effective • One market maker can build and operate several exchanges from a unified, centralized location • Dealing with 3rd-party vendors that provide logistic services and payment systems may be more efficient if a vendor is supplying services to many exchanges S. Kungpisdan

  41. Managing Exchanges • Critical Success Factors for Exchanges • Early liquidity • Liquidity requires having a sufficient number of participants and amount of transaction volume • The right owners or partners • The right governance • Good management and effective operations • Governance provides rules for the exchange, minimize conflicts, and supports decision making • Openness • Must be open to all, from both organizational and technological perspectives • Commitment to open standards • A full range of services S. Kungpisdan

  42. Questions? Next lecture: E-Supply Chain, Collaborative Commerce, Intrabusiness EC, and Corporate Portals

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