B2B E-Commerce: Factors, Models, and Benefits

1. Overview Ch. 4 • Describe the factors that influence consumer behaviour online • Describe how companies are building one-to-one relationship with customers • Discuss the issues of e-loyalty and e-trust in EC • Describe consumer market research in EC • Describe the objectives of web advertising on the web • Describe various online promotions

2. Company-Centric B2B and Collaborative Commerce

3. Learning Objectives • Describe the major types of B2B models • Describe the characteristics of the sell-side marketplace • Describe the sell-side intermediaries models • Describe the characteristics of the buy-side marketplace and e-procurement • Explain how forward and backward auctions work in B2B • Describe B2B aggregation and group purchasing models • Describe collaborative e-commerce • Describe infrastructure for B2B

4. Concepts, Characteristics and Models of B2B EC • B2B EC or eB2B (electronic B2B) defined • Transaction conducted electronically between business over the networks • Internet • Extranets • Intranets • Private networks (e.g., EDI) • Automated trading improves the process • Market size and content • Expected to grow from $1.1 trillion in 2003 to $10 trillion by 2005 • Percentage of Internet-based B2B from 2.1% in 2000 to 10% in 2005

5. Concepts, Characteristics and Models of B2B EC [2] • How is B2B conducted? • Directly between buyer and seller • Via an online intermediary: an online third-party that brokers a transaction between a buyer and a seller; can be virtual or click-and-mortar • With or without intermediaries • Types of transactions • Spot buying • Purchasing of goods and services as they are needed, usually at prevailing market prices, which are determined dynamically by supply and demand • Strategic sourcing • Purchases made in long term contracts that are usually based on private negotiation between sellers and buyers

6. Concepts, Characteristics and Models of B2B EC [3] • 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

7. Concepts, Characteristics and Models of B2B EC [4] • Direction of Trade • Vertical marketplaces • Markets that deal with one industry or industry section • Examples: electronics, cars, steel or chemicals • Horizontal • Markets that concentrate on a service or a product used in all types of industries • Examples: office supplies, PCs or travel services

8. 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

9. 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

10. 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)

11. Virtual service industries in B2B • Travel and tourism services • Real estate • Electronic payments • Online stock trading • Online financing • Other online services

12. Benefits of B2B • Eliminate paper-based systems and reduces administrative costs • Expedite cycle time • Lower search costs and time for buyers • Increase employee productivity dealing with buying and/or selling • Reduce errors and/or improve quality of services • Reduce inventory levels and costs • Increase production flexibility, permitting just-in-time delivery • Facilitate mass customization • Increase opportunities for collaboration

13. Sell-Side B2B Marketplace Architecture

14. 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

15. 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

16. Direct Sales from Catalogs [2] • Benefits • Reduces costs (to buyers and sellers) and errors during the process • Speeds up order cycle • Ability to customize products • Offer different prices to different customers • Limitations • Channel conflicts with distribution systems • High cost when traditional EDI used • Large number of business partners is needed to justify system

17. 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

18. 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

19. Buy Side Marketplaces: One-from-Many [2] • 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 • Potential inefficiencies: • Delays or Paying too much for rush orders • Maverick buying—unplanned purchases of items needed quickly, often from non-approved vendors or at higher prices

20. Buy Side Marketplaces: One-from-Many [3] • Goals of procurement reengineering • 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 • Fast

21. Buy Side Marketplaces: One-from-Many [4] • 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

22. Buy Side E-Marketplaces: Reverse Auctions • Buy-side e-marketplace • 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)

23. 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

24. Conducting Reverse Auctions [2] • Web-based reverse auction process • Buyers prepare bidding project information • Buyers post project on portal • Identify potential suppliers • Invite suppliers to bid • Suppliers download project information • Suppliers submit electronic bid • Reverse auction in real-time, or it can take a few days • Buyers evaluate and award contract

25. Benefits Reverse Auctions • Electronic process is faster • Administratively much less expensive • Enables location of cheapest possible products

26. Aggregating Catalogs • Aggregating suppliers’ catalogs: an internal marketplace • Maverick buying to save time leads to high prices • Aggregating all approved suppliers’ catalogs in one place • Reduced number of suppliers • Buyers at multiple corporate locations • Fewer and remote suppliers • Larger quantity/lower costs

27. Group Purchasing • Group purchasing—orders from several buyers are aggregated • Economy of scale • Reduced transaction processing cost • Putting together orders from multiple buyers to make large volumes/lower costs

28. Electronic Bartering • Electronic bartering • Exchange of goods or services without the use of money • Exchange a surplus for other need • Bartering exchange • Submit surplus to exchange for points • Points used to buy what company needs • Benefits: • Faster than manually • Easier to match

29. Collaborative Commerce (C-commerce) • Consisting of activities between business partners in jointly planning, designing, developing, managing, and researching products and services • Web-based systems used between and among suppliers for: • Communication • Design • Planning • Information sharing • Information discovery

30. Collaborative Commerce (C-commerce) [2] • Varieties of c-commerce: • Joint design efforts • Forecasting • Between and within organizations • Aids communication and collaboration between headquarters and subsidiaries, franchisers and franchisees • C-commerce platform provides e-mail, message boards, chat rooms, online corporate data access around the globe, no matter what the time zone

31. Barriers to C-commerce • C-commerce is moving ahead fairly slowly because: • Technical reasons involving integration, standards, and networks • Security and privacy concerns over who has access control of information stored in a partner’s database • Internal resistance to new models and approaches • Lack of internal skills to conduct c-commerce

32. B2B Infrastructure • Server to host database and applications • Software for executing sell-side (catalogs) • Software for conducting auctions and reverse auctions • Software for e-procurement (buy-side) • Software for CRM • Security hardware and software • Software for building a storefront • Software for building exchanges • Telecommunications networks and protocols

33. Integration • Integration with existing information systems issues • Intranet-based work flow • Database management systems (DMBS) • Application packages • ERP • Integration with business partners • Easy integration with one company-centric side • Not easy to integrate for many buyers or sellers

34. The Role of XML in B2B Integration • Companies interact easily and effectively by connecting to their servers, applications, databases • Standard protocols and data-representation schemes are needed • Web is based on the standard communication protocols useful only for displaying static visual Web pages: • TCP/IP • HTTP • HTML

35. The Role of XML in B2B Integration [2] • XML (eXtensible Markup Language) • Standard (and its variants) used to improve compatibility between the disparate systems of business partners by defining the meaning of data in business documents • Used to increase: • Interactivity • Accessibility

36. Summary • The B2B is very diversified and it can be divided into the following segments: • sell-side marketplaces • buy-side marketplaces • trading exchanges • c-commerce • Auctions play a major role in B2B • Increasing the exposure and/or the bargaining power of companies can be done by aggregating either the sellers or the buyers

37. Exercise • Why would a company want to decrease maverick purchases? • A firm wants to barter excess goods online for banner ads, but they cannot find a party willing to trade. What other options do they have?