Chapter 7

1. Chapter 7 Public B2B Exchanges and Portals

2. Learning Objectives • Define e-marketplaces and exchanges and describe their major types. • Describe the various ownership and revenue models of exchanges. • Describe B2B portals. • Describe third-party exchanges.

3. Learning Objectives (cont.) • Distinguish between purchasing (procurement) and selling consortia. • Define dynamic trading and describe B2B auctions. • Describe the operation and benefits of networks of exchanges. • Discuss exchange management.

4. Learning Objectives (cont.) • Describe the critical success factors of exchanges. • Discuss implementation issues of e-marketplaces and exchanges. • Describe the major support services of B2B. • Describe the role of extranets in supporting marketplaces and exchanges.

5. ChemConnect: The World Chemical Exchange • The Problem • Before the Internet, the B2B trading process was slow, fragmented, ineffective, and costly • Buyers paid too much, sellers had high expenses, and intermediaries were needed to smooth the trading process

6. ChemConnect: The World Chemical Exchange (cont.) • The Solution • Traders meet electronically in a large Internet marketplace • Save on transaction costs, reduce cycle time, and find new markets and trading partners around the globe

7. ChemConnect: The World Chemical Exchange (cont.) • ChemConnect provides a trading marketplace and an information portal to over 7,500 members in 135 countries • Members are: • Producers • Consumers • Distributors • Traders • Intermediaries involved in the chemical industry

8. ChemConnect: The World Chemical Exchange (cont.) • Trading Center consists of 3 trading areas • Marketplace for buyers • Marketplace for sellers • Commodity market platform

9. ChemConnect: The World Chemical Exchange (cont.) • ChemConnect members use the Trading Center to streamline sales and sourcing processes by automating requests for quotes, proposals, and finding new suppliers • The center enables a member to negotiate more efficiently with existing business partners as well as with new companies the member may invite to the table in complete privacy

10. ChemConnect: The World Chemical Exchange (cont.) • The revenue model includes: • members’ annual transaction fees • monthly or annual subscription fees (for trading and for auctions) • fulfillment service fees • Three trading locations provide up-to-the-minute market information • Business partners provide several support services (payments, delivery, etc.)

11. ChemConnect: The World Chemical Exchange (cont.) • The Results • Benefits of ChemConnect to its members are: • more efficient business processes • lower overall transaction costs • time saved during negotiations and biddings • sellers reach more buyers and liquidate surpluses rapidly

12. ChemConnect: The World Chemical Exchange (cont.) • What we can learn… • Electronic exchange is owned and operated by a third-party intermediary • Buyers and sellers, as well as other business partners, congregate electronically to conduct business

13. B2B Electronic 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

14. B2B Electronic Exchanges(cont.) • Market maker:The third-party that operates an exchange (and in many cases, also owns the exchange) • Systematic sourcing:Purchasing done in long-term supplier–buyer relationships • Spot sourcing:Unplanned purchases made as the need arises

15. B2B Electronic Exchanges(cont.)

16. B2B Electronic Exchanges(cont.)

17. B2B Electronic Exchanges(cont.) • Vertical exchange:An exchange whose members are in one industry or industry segment • Horizontal exchanges:Exchanges that handle materials used by companies in different industries

18. B2B Electronic Exchanges(cont.) • Dynamic pricing:A rapid movement of prices over time, and possibly across customers, as a result of supply and demand Dynamic Pricing

19. B2B Electronic Exchanges(cont.) • Process that results in dynamic pricing in most exchanges includes • A company posts a bid to buy a product or an offer to sell one • Anonymity is often a key ingredient of dynamic pricing • Buyers and sellers interact with bids and offers in real time • 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

20. B2B Electronic Exchanges(cont.) • Functions of exchanges • Matching buyers and sellers • Facilitating transactions • Maintaining exchange policies and infrastructure

21. B2B Electronic Exchanges(cont.)

22. B2B Electronic Exchanges(cont.) • Ownership of exchanges • An industry giant • A neutral entrepreneur • The consortia (or “third-party” co-op)

23. B2B Electronic Exchanges(cont.) • Revenue models • Transaction fees • Fee for service • Membership fees • Advertising fees • Other revenue sources

24. B2B Electronic Exchanges(cont.) • Governance and organization • Membership the community in the exchange • Site access and security information should be carefully protected • Services provided by exchanges provide many services to buyers and sellers

25. B2B Electronic Exchanges(cont.)

26. B2B Electronic Exchanges(cont.)

27. B2B Portals • B2B portals:Information portals for businesses • Pure information portals include: • directories of products offered by each seller • lists of buyers and what they want • other industry or general information

28. B2B Portals (cont.) • Vortals:B2B portals that focus on a single industry or industry segment; “vertical portals”

29. B2B Portal Examples • Thomas Register—information portal • Sellers distribute information on what they have to sell • Buyers can find what they need and purchase over a comprehensive and secure procurement channel • reduce costs • shrink cycle times • improve productivity

30. B2B Portal Examples (cont.) • Alibaba.com—started as a pure information portal and is moving toward becoming a trading exchange • Huge database is a horizontal information portal with offerings in a wide variety of product categories • Reverse auctions • Features–free email, email alerts, etc • Revenue model—advertisement and fees for special

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

32. Third Party (Trading) Exchanges (cont.) • A major problem is: Market liquidity:The degree to which something can be bought or sold in a marketplace without affecting its price

33. Third Party (Trading) Exchanges (cont.)

34. Third Party (Trading) Exchanges (cont.) • Buyer aggregation model buyers’ RFQs are aggregated and then linked to a pool of suppliers that are automatically notified of the RFQs • Suitability • aggregation models work best with MROs and services that are well defined, that have stable prices, and where the supplier or buyer base is fragmented

35. Third Party (Trading) Exchanges (cont.)

36. Consortium Trading Exchanges • Consortium trading exchange (CTE):An exchange formed and operated by a group of major companies to provide industrywide transaction services • Three basic types of environments: • Fragmented markets • Seller-concentrated markets • Buyer-concentrated markets

37. Consortium Trading Exchanges (cont.) • CTEs, defined by two main criteria: • whether they focus on buying or selling • whether they are vertical or horizontal • 4 types of CTEs • Purchasing oriented, vertical • Purchasing oriented, horizontal • Selling oriented, vertical • Selling oriented, horizontal

38. Consortium Trading Exchanges (cont.) • Purchasing-oriented consortia • Vertical Purchasing-Oriented CTEs all the players are in the same industry • Horizontal Purchasing-Oriented CTEs owner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries

39. Consortium Trading Exchanges (cont.) • Selling-oriented consortia • Most selling-oriented consortia are vertical • Participating sellers have thousands of potential buyers within a particular industry

40. Consortium Trading Exchanges (cont.) • Other issues for consortia • Legal challenges for B2B consortia • level of collaboration among both competitors and business partners • antitrust and other competition laws must be considered

41. Consortium Trading Exchanges (cont.) • Critical success factors for consortia • Appropriate business and revenue models • Size of the industry • Ability to drive user adoption • Elasticity Elasticity: The measure of the incremental spending by buyers as a result of the savings generated

42. Consortium Trading Exchanges (cont.) • Management of intensive information flow • Smoothing of supply chain inefficiencies • Harmonized shared objectives • Combining consortia and third-party exchanges • dot-consortia—large consortia + third-party owner • combination may bring about the advantage of both ownership and minimizing third-party limitations such as low liquidity

43. 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) • Matching • supply and demand • quantity, delivery times, and locations

44. Dynamic Trading: Matching and Auctions (cont.) • Auctions • Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms • auction services as one of its many activities • fully dedicated to auctions • Many-to-many public auctions—vertical, horizontal, run on the Internet or over private lines

45. Building E-Marketplaces • Building e-marketplaces is a complex process • usually performed by a major B2B software company • Commerce One • Ariba • Oracle • IBM

46. Building E-Marketplaces (cont.) • Integration issue • Seamless integration is needed between the third-party exchange and the participants’ front and back-office systems • In private exchanges the seller’s computing system must be integrated with the customers systems

47. Building E-Marketplaces (cont.) • External communications • Web/client access • Data exchange • Direct application integration • Shared procedures • Process and information coordination in integration how to coordinate external communications with internal information systems

48. Building E-Marketplaces (cont.) • Use of Web services in integration Web Services enable different Web-based systems to communicate with each other using Internet-based protocols such as XML • System and information management in integration management of software, hardware, and several information components, including partner-profile information, data and process definitions, communications and security settings, and users’ information

49. Support Services for Public and Private Marketplaces • Directory services and search engines • Directory services help buyers and sellers manage the task of finding potential partners

50. Support Services for Public and Private Marketplaces (cont.) • Partner relationship management (PRM):Business strategy that focuses on providing comprehensive quality service to business partners • E-communities and PRM B2B application needs to provide community services such as chat rooms, bulletin boards, and possibly personalized Web pages