Chapter 6 Business-to-Business Electronic Commerce

1. Chapter 6Business-to-Business Electronic Commerce

2. Learning Objectives • Distinguish between B2B and B2C • Identify the relationship between B2B and supply chain management • Classify the categories of B2B models and architectures according to the nature of the electronic stores and malls • Describe typical cases of Supplier, Buyers, and Intermediary-Oriented Market Places • Outline the current and next-generation characteristics of B2B Electronic Commerce

3. Learning Objectives (cont.) • Distinguish between VAN-based an Internet-base EDI • Describe the role of Just-In-Time in B2B Electronic Commerce • Describe how software agents can facilitate communication between sellers and buyers • Describe how marketing is done in B2B

4. For each requisition, the accompanying blueprints had to be requested from storage, retrieved from the vault, transported to the processing site, photocopied, folded, attached to paper requisition forms with quote sheets, stuffed into envelopes and mailed out. This process took at least 7 days and was so complex and time-consuming that the sourcing department normally sent out bid packages only to two or three suppliers at a time. Trading Process Network (TPN)Post in General Electric • General Electric (GE) • Its purchasing was inefficient, involved too many administrative transactions Factories at GE Lighting division used to send hundreds of Requisitions For Quotations (RFQs) to the corporate sourcing department each day for low-value machine parts. • GE is conducting electronic bids, no paperwork

5. Trading Process Network (TPN)Post in General Electric (cont.) • Benefits of using TPN • 60%of the staff involved in procurement have been redeployed. The sourcing department has at least 6-8 free days a month to concentrate on strategic activities rather than on paperwork, photocopying and envelope stuffing it had to do when the process was manual. • Labor involved in procurement declined by 30%. At the same time, materials costs declined 5%-20% due to the ability to reach a wider base of suppliers online. • It used to take 18-23 days to identify suppliers, prepare a request for bid, negotiate a price and award the contract to a supplier. It now takes 9-11 days. • With the transaction handled electronically from beginning to end, invoices are automatically reconciled with purchase orders, reflecting any modifications that happen along the way. • GE Procurement departments across the world now share information about their best suppliers.

6. Upstream Internal Downstream 2nd Tier Supplier Distribution Centers Customers 1st Tier Supplier Assembly/ Manufacturing and Packaging 2nd Tier Supplier 1st Tier Supplier 2nd Tier Supplier Retailers Packaged Cereal Cereal Grain Grain Producer Processing Facility Packaging Distributor Customers Paperboard Corrugate Manufacturer Store Labels Word Lumber Company Label Manufacturer Supply Chain • Definition • All activities associated with the flow and transformation of goods from raw materials to end users

7. Characteristics of B2B EC • Key Entities of B2B EC • Buying company with procurement management perspective • Selling company with marketing management perspective • Electronic Intermediary, an optional third party directory service provider (the scope of service may be extended to order fulfillment) • Deliverer who can fulfill a just-in-time delivery • Network platform such as the Internet, VAN, intranet and extranet • Protocol of communication such as EDI and comparison shopping possibly using software agents • Back-end information system possibly implemented using the intranet and Enterprise Resource Planning (ERP) systems

8. Characteristics of B2B EC (cont.) • Relationship with Electronic Marketing • Supplier-oriented marketing • Used to sell the company’s products and services to business customers on the Internet • Electronic catalogs are basically the same as that for B2C EC, but they may be customized • Using electronic auctions to liquidate surpluses • Relationship with Procurement Management • Purchasing company’s point of view : a medium of achieving the goals of procurement management • Procurement management’s point of view : the buyer-oriented market can be effective • Using a RFQ-bidding mechanism

9. Characteristics of B2B EC (cont.) • Relationship with Electronic Intermediaries • Similar to the B2B electronic intermediaries, but the customers are businesses • Also, special intermediaries for matching buyers and sellers, bartering etc. • Relationship with intranet are very important • Relationship with extranets • A dedicated network between business partners or a secured public network like the Internet • Implementing a virtually private network (VPN) to improve internet security

10. Business Customers Consumers Supplier’s Electronic Mall Supplier’s Products Catalog Customer’s Order Information B2C E-commerce B2B E-Commerce Models of B2B EC • Supplier-Oriented Market Place • Individual consumers and business buyers use the same supplier-provided market place (May pay different prices due to quantity discount)

11. Business Suppliers Buyer’s Electronic Mall Buyer’s Products Catalog, RFQ Suppliers’ Bids, Information Models of B2B EC (cont.) • Buyer-Oriented Market Place • Buyer opens a market on its own server and invites potential suppliers to bid on RFQs • Offer opportunity to committed suppliers • BUT as the number of such sites increase, only very big buyers can afford to fully utilize this approach • OVERCOME with the aid of software agents

12. Business Suppliers Business Customers Intermediary’s Electronic Mall Customer’s Order Information Shared Products Catalogs Supplier’s Product Information Models of B2B EC (cont.) • Intermediary-Oriented Market Place • Establish an electronic intermediary company • Similar to an intermediary-based B2C mall; bring buyers and suppliers (bidders) to one place • The corporate information systems need tight coupling with the intermediary electronic mall

13. Procurement Management Using B2B EC Platform • Purchasing is now a strategic function, to increase profit margins • By automating and streamlining the laborious routine of the purchasing function, purchasing professionals can focus on more strategic purchases, achieving the following goals: • Reducing purchasing cycle time and cost • Enhancing budgetary control • Eliminating administrative errors • Increasing buyers’ productivity • Lowering prices through product standardization and consolidation of purchases • Better information management; e.g. supplier’s information and pricing information • Improving the payment process

14. Case Study of Supplier-Oriented Market Place:CISCO Connection Online • Customer Service— Cisco Connection online • Online Ordering— Internet Product Center builds virtually all its products to order • Finding Order Status— gives the customers tools to find answers to order status inquiries by themselves • Benefits— save the company $363 million per year from technical support, human resources, software distribution and marketing material • The Future— expect online sales to grow more than 60% of total volume in 1999

15. Case Study of Customer-Oriented Market Place:GE’s TPN Post • Provides a chance for sellers to participate in the bidding process of GE using the following procedure: • Buyers prepare bidding project information • Buyers post the bidding projects on the Internet • Buyers identify potential suppliers • Buyers invite suppliers to bid on projects • Suppliers download the project information from the Internet • Suppliers electronically submit bids for projects • Buyers evaluate the suppliers’ bids and negotiate online to achieve the ‘best deal’ • Buyers accept the bid that best meets their requirements

16. Case Study of Customer-Oriented Market Place:GE’s TPN Post (cont.) • The benefits of joining GE TPN Post • As buyers • Identify and build partnerships with new suppliers worldwide • Strengthen relationships and streamline sourcing processes with current business partners • Rapidly distribute information and specifications to business partners • Transmit electronic drawings to multiple suppliers simultaneously • Cut sourcing cycle times and reduce costs for sourced goods • Quickly receive and compare bids from large number of suppliers to negotiate better prices • As Sellers • Boost Sales • Expand market reach • Cut costs for sales and marketing activities • Shorten the selling cycle • Improve sales productivity • Streamline the bidding process

17. Case Study of Intermediary-Oriented Market Place: Boeing’s PART • Boeing’s PART Case • Acts as an intermediary between the airlines and parts’ suppliers • Provides a single point of online access through which airlines and parts providers can access the data needed • Goal: provide its customers with one-stop shopping with online parts and maintenance information and ordering capability

18. Case Study of Intermediary-Oriented Market Place: Boeing’s PART (cont.) • Boeing On Line Data (BOLD) • Incorporating not only engineering drawings but manuals, catalogs and other technical information that used to be available only in paper or in microfiche format • Portable Maintenance Aid (PMA) • Solves maintenance problems

19. Case Study of Intermediary-Oriented Market Place: Boeing’s PART (cont.) • Benefits to Boeing’s Customers • Increased productivity • spending less time searching for information; frees up engineers and maintenance technicians to focus on more productive activities • Reduced costs • with information available online at the airports’ gates, through PMA, rather than back in the office, delays at the gate due to missing information are reduced • Increased revenue opportunity • through BOLD and PMA, a European airline estimates it will save 1-2 days/year of down time for each aircraft • Should Boeing keep the inventory of parts in stock, or relay on the manufacturers?

20. Just-In-Time Delivery:Fed Express InterNetShip • FedEx • Internet and private networks improve efficiency and customer satisfaction • FedEx PowerShip and FedEx Ship were the two software rolled out in the mid-1980s and 1995 respectively • Now moving to the Internet : InterNetShip

21. Just-In-Time Delivery:Fed Express InterNetShip (cont.) • FedEx InterNetShip • Extends online capabilities to the Internet • Customers can request a parcel pickup or find the nearest drop-off point, print packing labels, compute fees, request invoice adjustments and track the status of their deliveries without leaving the Web site • FedEx COSMOS (own proprietary network) handles 54 million transactions a day (1998) • Hundreds of thousands of tracking requests per month come from links from over 5,000 Web sites to fedex.com

22. Just-In-Time Delivery:Fed Express InterNetShip (cont.) • Benefits to FedEx • Avoided Costs • If not for FedEx PowerShip, FedEx would have had to hire an additional 20,000 employees to answer phone calls at the call centers and key in air bills • Lower Operating Costs • Without the system, approximately half of the calls would have gone to FedEx’s toll-free number resulting in high telephone and labor expenses • Better Customer Service • Customers still have a choice for how they interact with the company, whether by e-mail, phone, fax or other means

23. Business-to-Business Auctions • Benefits • New sales channel • New venue for disposing excess, obsolete products • Increase page views; viewers like to watch auctions • Acquire and retain members • Types • Independent auctions: using 3rd party auction site • Community auctions: many sellers and buyers simultaneously (Electricity, Flowers) • Private auctions: large distributor (Ingrain Micro)

24. Business-to-Business Auctions (cont.) • What Auction Intermediary Provides? • All necessary infrastructure • Company controls all auction information (software provided) • All procedures for auctions • Fast deployment time • Search engine • Trust mechanism (escrow, insurance) • Activity report generation • Billing and collection

25. EDI - The Infrastructure for B2B • A network for transmitting standard transactions • A paperless TPS environment • Routine documents; purchase order, billings, shipping manifests • Documents translated into standard business language • In use since the 1970s on private VANs. Save time, reduce errors in data entry, save money, consistent information flow • Provide strategic advantages

26. Buyer Supplier RFQ Response to RFQ Purchase Order P.O. Acknowledgement Purchase Order Change P.O. Change Acknowledgement Functional Acknowledgement ) (for each Transaction RFQ = Request for Proposal P.O. = Purchasing Order EDI - The Infrastructure for B2B (cont.) • Typical Flow of EDI Messages • one order - seven messages!!

27. From Traditional to Internet-based EDI • Factors limiting businesses to benefit from the traditional EDI • Significant initial investment is needed • Restructuring business processes is necessary to fit the EDI requirements and standards • Long start-up time is needed • Use of Private VANs is necessary • High EDI operating cost is needed • There are several EDI standards • The EDI system is complex to use

28. From Traditional to Internet-based EDI (cont.) • Traditional EDI does not meet following requirements: • Enable more firms to use EDI • Encourage full integration of EDI into trading partner business processes • Simplify EDI implementation • Expand the capabilities of online information exchange

29. From Traditional to Internet-based EDI (cont.) • Reasons for firms to create the ability to change transactions over the Internet • The Internet is a publicly accessible network with few geographical constraints. Its largest attribute, large-scale connectivity (without the need to have special company networking architecture) is a seedbed for growth of a vast range of business applications. • The Internet global inter-network connections offers the potential to reach the widest possible number of trading partners of any viable alternative currently available.

30. From Traditional to Internet-based EDI (cont.) • Reasons • Using the Internet can cut communication cost by over 50%. • Using the Internet to exchange EDI transactions is consistent with the growing interest of business in delivering an ever-increasing variety of products and services electronically, particularly through the Web. • Internet-based EDI can compliment or replace current EDI systems. • Internet tools such as browsers and search engines are very user friendly and most users today know how to use them.

31. Requirement of Human Buyer Requirement of Human Buyer Buyer Agent B1 Buyer Agent B2 Seller Agent S1 Seller Agent S2 Seller Agent S3 Seller Agent S3 Human Seller 1 Human Seller 2 Human Seller 3 Human Seller 4 The Role of Agents in B2B EC

32. AGENT Problem Solver Communication Controller Outgoing Msg. Message Base Problem Solving Manager Incoming Msg. Message Manager Directory Consulting Directory Solution Engines Individual Manager Order Agent Data Base Knowledge Base Message Queue Mgt. Message Gate The Role of Agents in B2B EC (cont.) An Architecture of Intelligent Agents for Electronic Commerce: UNIK-AGENT Approach

33. Current B-to-C Platform Prospective B-to-B Platform Buyer’s information stored in the seller’s server Buyer’s information needs to be stored in the buyer’s server to integrate with back-end systems such as Intranet, Workflow & ERP Limited bookkeeping-supported Complete bookkeeping necessary Web technology using a thin client is adopted. Web technology with thick client is needed. Java and External helper Program at client PC are necessary. The Role of Agents in B2B EC (cont.) • Management of Buyer Information at Buyer Sites to Integrate with Corporate Information Systems

34. Current B-to-C Platform Prospective B-to-B Platform Customers need to visit many malls Meta-Mall architecture is need for the customers to reduce the effort of visiting many sites Every mall requires a proprietary shopping bag and digital wallet Standard shopping bag and digital wallet that can work independently of malls are necessary Software agents merely help the search process Comparison-shopping needs to be treated as multiple criteria decision support Customer membership registration is requested for each mall Shared customer membership is necessary to allow the comparison of multiple malls with a single registration The Role of Agents in B2B EC (cont.) • Comparison Shopping with Buyer’s Own Electronic Bag

35. Current B-to-C Platform Prospective B-to-B Platform Inventory availability is not displayed Dynamic inventory availability should be displayed to customers Precise delivery date is less critical Precise delivery date should be dynamically confirmed at ordering time Ordering system is fragmented from inventory system Integration of orders with inventory, production scheduling, and delivery scheduling systems essential The Role of Agents in B2B EC (cont.) • Just-in-Time Delivery

36. Current B-to-C Platform Prospective B-to-B Platform Seller Oriented Directory popular To big buyers, Buyer Oriented Directory should be offered Major motivation of EC is sales promotion Additional motivation is the re-engineering acquisition process Either buyer or seller oriented directory is developed Intermediary directory is necessary to coordinate between seller and buyer oriented directories The Role of Agents in B2B EC (cont.) • Buyer Oriented Directory

37. Current B-to-C Platform Prospective B-to-B Platform Ordering without formal contract is enough for order fulfillment Formal contract with electronic documents that include specific terms and conditions is necessary Free contract protocol Legitimate contract protocol needs to be conformed Electronic version of traditional bidding and auction are implemented More creative contract protocol can be innovated The Role of Agents in B2B EC (cont.) • Formal Contract with Bidding Process

38. Current B-to-C Platform Prospective B-to-B Platform Purchasing is an individual buyer’s decision Purchasing is an organizational buyer’s decision Buying decision process does not need coordination Buying decision is made as a combination of synchronous group decision (using web conference and Internet phone) and asynchronous group decision (using workflow tools) The Role of Agents in B2B EC (cont.) • Organizational Purchasing Decision

39. Current B-to-C Platform Prospective B-to-B Platform Human interactively involved in the buying decision Buyer’s and seller’s software agents assist communication to minimize human’s involvement Software agent in one site cannot understand the norm of the counterpart agents Mutually agreed contract type conformation is necessary to effectuate the communication between agents Buyers have to search around the seller’s products catalog configuring manually Seller agents assist the configuration process based on the buyer’s requirement specification Seller’s data mining is popular Buyer’s data mining is additionally necessary The Role of Agents in B2B EC (cont.) • Agent Based Commerce

40. Current B-to-C Platform Prospective B-to-B Platform Credit card is popular, and relatively high fee is charged to sellers Electronic check and electronic fund transfer will become popular, whose fees are traditionally paid by payer The Role of Agents in B2B EC (cont.) • Secure Large Amount Payment Security, certification and non-repudiation will become more critical. So registered delivery, which keeps the important transaction record at the third party will become popular

41. Issues in B2B Advertisement and Marketing • Finding and retaining business customers • Making them buy • Reaching organizational buyers (functional, corporate) • Building relationship marketing in B2B • Advertisement, mailing lists, strategies • Mailing lists: house, response, compiled • The role of the CD-ROM • Marketing databases and e-mail lists

42. Internet Marketing Strategies • Generating and qualifying leads with the Internet • Using Internet events to promote products and services • Executing instant fulfillment on the Internet • Generating orders through the Internet • Enhancing customer relationships with the Internet

43. Managerial Issues • If sales promotion is a major concern, adopt the Supplier-Oriented Marketing approach possibly joining popular Intermediary-Oriented Market Places as well • If purchase process re-engineering is a major concern, consider establishing Customer-Oriented Market Place (if sales volume is big enough) to attract the attention of major vendors • Otherwise, join a third party Intermediary-Oriented Market Place to implement the plan from either or both aspects, because every company needs effective and efficient sales and purchases