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Chapter 6 Public B2B Exchanges

Chapter 6 Public B2B Exchanges. Learning Objectives. List the various types of e-marketplaces Describe B2B portals Describe third-party exchanges Distinguish between e-procurement and e-selling consortia Describe the various ownership and revenue models of exchanges

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Chapter 6 Public B2B Exchanges

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  1. Chapter 6Public B2B Exchanges Prentice Hall, 2003

  2. Learning Objectives • List the various types of e-marketplaces • Describe B2B portals • Describe third-party exchanges • Distinguish between e-procurement and e-selling consortia • Describe the various ownership and revenue models of exchanges • Describe the support mechanisms offered by exchanges, including auctions Prentice Hall, 2003

  3. Learning Objectives (cont.) • Describe networks of exchanges and exchange management • Describe the critical success factors of exchanges • Discuss implementation and development issues of e-marketplaces and exchanges • Describe the major support services of B2B • Describe the extranet and its role in supporting marketplaces and exchanges Prentice Hall, 2003

  4. ChemConnect:The World Chemical Exchange • The Problem • Thousands of companies trade raw and partially processed chemicals and plastics daily • Before the Internet the trading process was slow, fragmented, ineffective, costly • As a result: • Buyers paid too much • Sellers had high expenses • Intermediaries were needed for to smooth the process Prentice Hall, 2003

  5. ChemConnect (cont.) • The Solution • Provides free membership in trading marketplaces and information portals • Public exchange floor for anonymous bids • Commodities floor for buying and exchanging • Corporate trading rooms—private online auctions • Up-to-the-minute market information • Large electronic catalog • Independent intermediary Prentice Hall, 2003

  6. ChemConnect (cont.) • The Results • In ChemConnect trading rooms companies can save up to 15% in just 30 minutes of reverse auction • ChemConnect is growing rapidly, adding members and increasing trading volume each year Prentice Hall, 2003

  7. B2B Exchanges • Public e-marketplaces (public exchanges)—trading venues open to all interested parties (sellers and buyers) and usually run by third parties • Exchange—a many-to-many e-marketplace. Also known as e-marketplaces, e-markets, and trading exchanges Prentice Hall, 2003

  8. B2B Exchanges (cont.) • Market maker—the third-party that operates an exchange (and in many cases, also owns the exchange) • Companies that use exchanges are pleased with them and plan to increase the number of exchanges they participate • Traders expect to more than double the value of transactions that they do through the exchanges Prentice Hall, 2003

  9. Exhibit 6.1Trading Communities: Information Flowand Access to Information Prentice Hall, 2003

  10. Classifications of Exchanges • Systematic sourcing—purchasing done in long-term supplier-buyer relationships • Spot sourcing—unplanned purchases made as the need arises • Vertical exchange—an exchanges whose members are in one industry or industry segment • Horizontal exchange—an exchanges that handles materials traded in several different industries Prentice Hall, 2003

  11. Exhibit 6.2Classifications of B2B Exchanges Prentice Hall, 2003

  12. B2B Exchanges • Dynamic pricing • Ownership of exchanges • Governance • Organization of exchanges • Gains and risks of B2B exchange participation Prentice Hall, 2003

  13. Dynamic Pricing • Dynamic pricing—a rapid movement of prices over time, and possibly across customers, as a result of supply and demand • Stock exchanges sometimes change minute by minute • Auction prices vary all the time Prentice Hall, 2003

  14. Dynamic Pricing (cont.) • Typical process that results in dynamic pricing in most exchanges • A company lists a bid to buy a product or an offer to sell one • Buyers and sellers can see the bids and offers—anonymity is often a key ingredient of dynamic pricing Prentice Hall, 2003

  15. Dynamic Pricing (cont.) • Buyers and sellers interact in real time with their own bids and offers—join together to obtain a volume discount price (group purchasing) • A deal is struck when there is an exact match between a buyer and a seller on price, volume, and other variables such as location or quality • The deal is consummated, and payment and delivery are arranged Prentice Hall, 2003

  16. Ownership of Exchanges • An industry giant (IBM’s patent exchange delphian.com) • A neutral entrepreneur—a third-party intermediary (ChemConnect.com) • The consortia (or co-op)—several industry players set up an exchange (Covisint.com) Prentice Hall, 2003

  17. Governance • Exchanges governed by guidelines and rules • How the exchange operates • What the requirements are to join the exchange • What fees are involved • What rules need to be followed Prentice Hall, 2003

  18. Governance (cont.) • Security and privacy for documents • Contract terms between an exchange and buyers/sellers • Assurances that the exchange is fair Prentice Hall, 2003

  19. Organization of Exchanges • Membership • Generate revenue • Transaction and other fees • Registration fees • Annual membership fees • qualification process • deposit may be required • Limits set on how much each member can trade Prentice Hall, 2003

  20. Organization of Exchanges (cont.) • Site access and security • Information should be carefully protected—competitors congregate in the same exchange • Prevent illegal offers and bids • List of individuals who are authorized to represent the participating companies Prentice Hall, 2003

  21. Exhibit 6.3Services in Exchanges Prentice Hall, 2003

  22. Exhibit 6.4Gains and Risks of B2B Exchanges Prentice Hall, 2003

  23. B2B Portals • B2B portals—information portals for businesses • Thomas register—facilitates business transactions for MROs • Alibaba.com • Database • Reverse auctions • Features and Services • Revenue model • Vortals--B2B portals that focus on a single industry or industry segment; “vertical portals” Prentice Hall, 2003

  24. Third-Party (Trading) Exchanges • Electronic intermediaries • Do not favor either sellers or buyers—neutral • without a built-in constituency of sellers or buyers they have a problem attracting enough buyers and sellers to attain financial viability • Liquidity—the result of having a sufficient number of participants in the marketplace as well as a sufficient transaction volume Prentice Hall, 2003

  25. Exhibit 6.6Supplier Aggregation Model Prentice Hall, 2003

  26. Exhibit 6.7Buyer Aggregation Model Prentice Hall, 2003

  27. Suitability of Third-Party Exchanges • Fragmented markets • Markets that have large numbers of both buyers and sellers • Mainly suitable for MROs • Buyer-concentrated markets—several large companies sell to a very large number of buyers • Seller-concentrated markets—several large companies do most of the buying from a large number of suppliers Prentice Hall, 2003

  28. 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

  29. 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

  30. 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

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

  32. 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

  33. 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

  34. 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

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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 Prentice Hall, 2003

  40. 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

  41. 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

  42. 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

  43. 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

  44. TFA (cont.) Prentice Hall, 2003

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

  46. 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

  47. 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

  48. 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

  49. 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

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

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