Chapter 5 Company-Centric B2B and Collaborative Commerce

1. Chapter 5Company-Centric B2B and Collaborative Commerce Prentice Hall, 2003

2. Learning Objectives • Describe the B2B field • Describe the major types of B2B models • Describe the characteristics of the sell-side marketplace • Describe the sell-side intermediary models • Describe the characteristics of the buy-side marketplace and e-procurement Prentice Hall, 2003

3. Learning Objectives (cont.) • Explain how forward and backward auctions work in B2B • Describe B2B aggregation and group purchasing models • Describe collaborative e-commerce and interorganizational systems • Describe infrastructure and standards requirements for B2B Prentice Hall, 2003

4. General Motors’ B2B Initiatives • The Problem • EC initiatives—build-to-order project to be in place by 2005 reducing inventory of finished cars • What to do with manufacturing machines that are no longer sufficiently productive (assets problem) • Resource problem relating to procurement of commodity products Prentice Hall, 2003

5. General Motors’ (cont.) • The Solution • TradeXchange (now part of Covisint) online auctions of items like used machines for manufacturing • Significantly decreases time for sales • Increases dollar amount of the sales • EC initiatives at TradeXchange • Capital assets problem—implemented its own electronic market to conduct forward auctions • Procurement problem—automated the bidding, creating online reverse auctions on its e-procurement site Prentice Hall, 2003

6. General Motors’ (cont.) • The Results • Within just 89 minutes after the first forward auction opened, eight presses were sold for $1.8 million • In the first online reverse auction, GM purchased a large volume of rubber sealing packages for vehicle production at a significantly lower than the price GM had been paying through negotiated by manual tendering Prentice Hall, 2003

7. Concepts, Characteristics, and Models of B2 EC • Basic B2B Concepts • Business-to-business e-commerce (B2B EC)—transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B • Market Size and Content • Expected to grow from $1.1 trillion in 2003 to $10 trillion by 2005, the percentage of Internet-based B2B from 2.1% in 2000 to 10% in 2005 Prentice Hall, 2003

8. Concepts, Characteristics, and Models of B2 EC (cont.) • B2B EC Characteristics Parties to the transaction Online intermediary—an online third-party that brokers a transaction between a buyer and a seller; can be virtual or click-and-mortar; buyers; sellers • Types of transactions • Spot buying—the purchase of goods and services as they are needed, usually at prevailing market prices • Strategic sourcing—purchases involving long-term contracts that are usually based on private negotiations between sellers and buyers Prentice Hall, 2003

9. Concepts, Characteristics, and Models of B2 EC (cont.) • Types of materials • Direct materials—materials used in the production of a product (e.g., steel in a car or paper in a book) • Indirect materials—materials used to support production (e.g., office supplies or light bulbs) • MROs (maintenance, repairs, and operations)—indirect materials used in activities that support production Prentice Hall, 2003

10. Concepts, Characteristics, and Models of B2 EC (cont.) • Direction of trade • Vertical marketplaces—markets that deal with one industry or industry segment (e.g., steel, chemicals). • Horizontal marketplaces—markets that concentrate on a service or a product that is used in all types of industries (e.g., office supplies, PCs) Prentice Hall, 2003

11. Concepts, Characteristics, and Models of B2 EC (cont.) • The Basic B2B Transaction Types • Sell side—one seller to many buyers • Buy side—one buyer from many sellers • Exchanges—many sellers to many buyers • Collaborative commerce—communication and sharing of information, design, and planning among business partners Prentice Hall, 2003

12. Exhibit 5.1Types of B2B E-Commerce Prentice Hall, 2003

13. One-to-Many and Many-to-One: Company-Centric Transactions • Company-centric EC—e-commerce that focuses on a single company’s buying needs (many-to-one, or buy-side) or selling needs (one-to-many, or sell-side) • Private e-marketplaces—markets in which the individual sell-side or buy-side company has complete control over participation in the selling or buying transaction Prentice Hall, 2003

14. Many-to-Many: Exchanges • Exchanges—many-to-many e-marketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other; also called trading communities, or trading exchanges • Public e-marketplaces—third-party markets that are open to all interested parties (sellers and buyers) Prentice Hall, 2003

15. Concepts, Characteristics, and Models of B2 EC (cont.) • Supply chain relationships in B2B • Interrelated subprocesses and roles • B2B applications offer competitive advantages for supply chain management (SCM) • Virtual service industries in B2B • Travel and tourism services • Real estate Online stock trading • Electronic payments Online financing Prentice Hall, 2003

16. Concepts, Characteristics, and Models of B2 EC (cont.) • Benefits of B2B • Eliminates paper and reduces administrative costs • Expedites cycle time • Lowers search costs and time for buyers • Increases productivity of employees dealing with buying and/or selling • Reduces errors and/or improves quality of services • Reduces inventory levels and costs • Increases production flexibility, permitting just-in-time delivery • Facilitates mass customization • Increases opportunities for collaboration Prentice Hall, 2003

17. Sell-Side Marketplaces:One-to-Many • Sell-side e-marketplace—a Web-based marketplace in which one company sells to many business buyers, frequently over an extranet • 3 major methods for direct sale in the one-to-many model: • Selling from electronic catalogs • Selling via forward auctions • One-to-one selling under a negotiated, long-term contract Prentice Hall, 2003

18. Sell-Side Marketplaces (cont.) • Virtual sellers—sellers in the sell-side marketplace can be click-and-mortar manufacturers or intermediaries, usually distributors or wholesalers • Customer service Milacron, Inc. • Site contains 55,000 products, easy to use, securely handles selection, purchase, application • Technical service—expanded to provide a higher level of service Prentice Hall, 2003

19. Buying from Virtual Seller Bigboxx.com • Bigboxx.com.hk of Hong Kong • B2B office supply retailer services • Goal—sell products in various SE Asian countries • Offers more than 10,000 items • Uses more than 300 suppliers • Company portal attractive, easy to use • Browse online catalogs • Use search engines • Payments—cash or check upon delivery, automatic payments, credit card, purchasing card Prentice Hall, 2003

20. Bigboxx.com (cont.) • Delivery • Owns trucks and warehouses • Delivery scheduled online • Ordering system integrated with SAP-based back-office system • Value-added services • Track status of order • Check stock availability • Promotions • Customized prices • Group accounts and central approval • Standing orders automatically activated • Large number of reports and data available Prentice Hall, 2003

21. Exhibit 5.2Sell-Side B2B Marketplace Architecture Prentice Hall, 2003

22. Direct Sales from Catalogs • Companies may: • Offer one catalog for all customers • Customized catalog for each customer • Facilitate the B2B direct sale by providing the buyer with a buyer customized shopping cart • Configuration and customization • Efficient customization for direct sales • Business customers customize products, receive price quote, submit order Prentice Hall, 2003

23. Direct Sales from Catalogs (cont.) • Benefits • Lower order-processing costs • Faster ordering cycle • Fewer errors in ordering and product configuration • Lower search costs for buyers • Lower search costs for sellers • Lower logistics costs Prentice Hall, 2003

24. Direct Sales from Catalogs (cont.) • Benefits (cont.) • Ability to offer different catalogs and prices to different customers and to customize products and services efficiently • Limitations • Channel conflicts with distribution systems • High cost when traditional EDI used • Large number of business partners is needed to justify system Prentice Hall, 2003

25. Selling Via Auctions • Using auctions on the sell-side • Revenue generation • Increased page views Stickiness—characteristic of customer loyalty to a Web site, demonstrated by the number and length of visits to a site • Member acquisition and retention—bidding transactions result in additional registered members Prentice Hall, 2003

26. Selling Via Auctions (cont.) • Selling from own site when: • Large companies that conduct auctions frequently don’t benefit from using intermediaries • E-marketplace already in use, cost of adding auction not too high • Intermediary-oriented e-marketplace—an e-marketplace in which intermediaries operate Prentice Hall, 2003

27. Selling Via Auctions (cont.) • Using intermediaries when: • No resources required • Own and control auction information • Fast time to market • Searching and reporting • Search and report all auction activities • Standard reports available • Additional analysis of complex information Prentice Hall, 2003

28. Selling Via Auctions (cont.) • Billing and collection • Automatic calculation of shipping weights and charges • Payment—encrypted credit card data • Billing information—easily downloaded into existing systems • Successful if: • Sufficient number of loyal customers • Products well known • Price not major purchasing criteria Prentice Hall, 2003

29. CISCO Connection Online (CCO) • Benefits—saves the company $363 million per year in technical support, human resources, software distribution, marketing material • Customer service—Cisco Connection online • Online ordering—Internet Product Center builds virtually all products to order • Order status—customer tools for finding answers to order status inquiries Prentice Hall, 2003

30. Cisco Connection Online (CCO) (cont.) • Benefits to Cisco • Reduced operating costs for order taking • Enhanced technical support and customer service • Reduced technical support staff cost • Reduced software distribution costs • Lead times reduced fro 4-10 days to 2-3 days • Benefits to customers • Quick order configuration • Immediate cost determination • Collaboration with Cisco staff Prentice Hall, 2003

31. Marshall Industries • Marshall Industries—(a subsidiary of AvnetMarshall—avnet.com)multinational distributor of electronic components known for its innovative uses of IT and the Web • Products and services • MarshallNet • Marshall on the Internet (portal) • Strategic European Internet • Electronic Design Center • PartnerNet • NetSeminar • Education and News Portal Prentice Hall, 2003

32. Marshall Industries (cont.) • Survival strategy • Continuous improvement programs and innovations • Team-based organization, flat hierarchy, decentralized decision making • Profit sharing compensation for salespeople • CRM highly promoted • Web-based services create value between suppliers and customers • EC initiatives supported by: • Changing internal organization • Changing internal procedures Prentice Hall, 2003

33. Boeing’s PART Marketplace • Acts as an intermediary between the airlines and parts’ suppliers Provides a single point of online access for airlines and parts’ providers to access the data needed • Goal: provide its customers with one-stop shopping for online parts and maintenance information and ordering capability Prentice Hall, 2003

34. Boeing’s PART Marketplace (cont.) • Spare parts business using traditional EDI • Mechanic tells purchasing department parts are needed, purchase is approved, purchase is made • Large airlines connect to Boeing's VAN • Boeing finds parts and delivers • Debut of PART on the Internet • Encourages customers to order parts electronically—cheap, easy, fast • 50% of customers using Internet within first year Prentice Hall, 2003

35. Boeing’s PART Marketplace(cont.) • Benefits of PART online • Improved customer service • Significant operating savings • New sales opportunities • Customer service online reduced • Portable access to technical drawings/support • Portable Maintenance Aid (PMA)—solves maintenance problems Prentice Hall, 2003

36. Boeing’s PART Marketplace (cont.) • Benefits to Boeing’s customers • Increased productivity—less time searching for information • Reduced costs—delays at gate reduced because all information is available • Increased revenues—faster service provides time savings Prentice Hall, 2003

37. Buy Side Marketplaces:One-from-Many • Procurement methods • Buy from manufacturers, wholesalers, or retailers at their storefronts, from catalogs,and by negotiation • Buy from the catalog of an intermediary • Buy from an internal-buyer’s catalog • Conduct a bidding or tendering system • Buy at private or public auction sites • Join a group-purchasing system Prentice Hall, 2003

38. Buy Side Marketplaces:One-from-Many (cont.) • Procurement management—the coordination of all the activities relating to purchasing goods and services needed to accomplish the mission of an organization • Inefficiencies in procurement management • Purchasing personnel spend time and effort on procurement activities • Qualifying suppliers • Negotiating prices and terms • Building rapport with strategic suppliers • Carrying out supplier evaluation and certification Prentice Hall, 2003

39. Buy Side Marketplaces:One-from-Many (cont.) • Buyers are sometimes too busy with the details of the smaller items • Organizations address this imbalance by implementing new purchasing models • Potential inefficiencies: • Delays • Paying too much for rush orders • Maverick buying—unplanned purchases of items needed quickly, often from non-approved vendors or at higher prices Prentice Hall, 2003

40. Exhibit 5.4Traditional Procurement Process Prentice Hall, 2003

41. Buy Side Marketplaces:One-from-Many (cont.) • Goals of e-procurement • Increase purchasing agent productivity • Lower purchasing prices of items • Improve information flow and management • Minimize maverick (unplanned) buying • Improve payment process • Streamline purchasing process to make it simple and fast Prentice Hall, 2003

42. Buy Side Marketplaces:One-from-Many (cont.) • Goals of e-procurement (cont.) • Reduce administrative processing cost per order • Find new suppliers and vendors to provide faster/cheaper goods and services • Integrate procurement process with budgetary control in an efficient and effective way • Minimize human errors in buying or shipping process Prentice Hall, 2003

43. Buy Side Marketplaces:One-from-Many (cont.) • Implementing e-procurement • Fit e-procurement into company EC strategy • Review and change procurement process itself • Provide interfaces between e-procurement with integrated EIS • Coordinate buyer’s information system with the sellers Prentice Hall, 2003

44. Buy Side E-Marketplaces:Reverse Auctions • Buy-side e-marketplace—a Web-based marketplace in which a buyer opens an electronic market on its own server and invites potential suppliers to bid on the items the buyer needs; also called the reverse auction, tendering, or bidding model • Request for quote (RFQ)—the “invitation” to a buy-side marketplace (reverse auction) Prentice Hall, 2003

45. Exhibit 5.6Buy-Side B2B Market Architecture Prentice Hall, 2003

46. Conducting Reverse Auctions • Reverse auctions administered from a company’s Web site • Bidding process lasts a day or more • Bidders may bid only once or view the lowest bid and rebid several times • Increasing number of reverse auction sites makes it impossible for suppliers to monitor all of them • Online directories list open RFQs • Use software search-and-match agents to reduce the human burden in the bidding process Prentice Hall, 2003

47. Bidding Through a Third-Party Auctioneer: Freemarkets.com • United Technologies Corp. needs suppliers to make $24 million worth of circuit boards • 2,500 suppliers are identified as possible contractors • List is submitted to FreeMarkets (freemarkets.com) Prentice Hall, 2003

48. Freemarkets.com (cont.) • FreeMarkets reduced the list to 50, based on considerations including: • Plant location • Size of supplier • Plant capacity • Customer feedback • Detailed evaluation of the candidates Prentice Hall, 2003

49. Freemarkets.com (cont.) • 3-hour auction conducted of online competitive bidding: • First bid was seen by all bidders • Using reverse auction approach, the bidders reduced their bids • Comprehensive analysis of several of the lowest bidders • Then recommended the winners and collected its commission fees Prentice Hall, 2003

50. Procurement Revolution at GE • TPN (now part of gxs.com) • Purchasing was inefficient—too many administrative transactions • Process for each requisition took 7 days • Complex and time-consuming • Could only send out bids for 2 or 3 suppliers • Trading Process Network (TPN)—electronic bids • Entire process takes 7 days (for suppliers to bid) • 2 hours to send information to suppliers • Evaluate and award bids same day Prentice Hall, 2003