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

Company Centric B2b And Collaborative Commerce

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Page 1: Company Centric B2b And  Collaborative Commerce

Prentice Hall, 2003 1

Chapter 5

Company-Centric B2B and Collaborative Commerce

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Prentice Hall, 20032

Learning Objectives

Describe the B2B fieldDescribe the major types of B2B modelsDescribe the characteristics of the sell-side marketplaceDescribe the sell-side intermediary modelsDescribe the characteristics of the buy-side marketplace and e-procurement

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Explain how forward and backward auctions work in B2BDescribe B2B aggregation and group purchasing modelsDescribe collaborative e-commerce and interorganizational systemsDescribe infrastructure and standards requirements for B2B

Learning Objectives (cont.)

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General Motors’ B2B Initiatives

The ProblemEC initiatives—build-to-order project to be in place by 2005 reducing inventory of finished carsWhat to do with manufacturing machines that are no longer sufficiently productive (assets problem)Resource problem relating to procurement of commodity products

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General Motors’ (cont.)

The SolutionTradeXchange (now part of Covisint) online auctions of items like used machines for manufacturing

Significantly decreases time for salesIncreases dollar amount of the sales

EC initiatives at TradeXchangeCapital assets problem—implemented its own electronic market to conduct forward auctionsProcurement problem—automated the bidding, creating online reverse auctions on its e-procurement site

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General Motors’ (cont.)

The ResultsWithin just 89 minutes after the first forward auction opened, eight presses were sold for $1.8 millionIn 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

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Concepts, Characteristics, and Models of B2 EC

Basic B2B ConceptsBusiness-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 ContentExpected 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

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Concepts, Characteristics, and Models of B2 EC (cont.)

B2B EC CharacteristicsParties 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 transactionsSpot buying—the purchase of goods and services as they are needed, usually at prevailing market pricesStrategic sourcing—purchases involving long-term contracts that are usually based on private negotiations between sellers and buyers

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Concepts, Characteristics, and Models of B2 EC (cont.)

Types of materialsDirect 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

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Concepts, Characteristics, and Models of B2 EC (cont.)

Direction of tradeVertical 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)

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Concepts, Characteristics, and Models of B2 EC (cont.)

The Basic B2B Transaction TypesSell 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

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Exhibit 5.1Types of B2B E-Commerce

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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

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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 exchangesPublic e-marketplaces—third-party markets that are open to all interested parties (sellers and buyers)

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Concepts, Characteristics, and Models of B2 EC (cont.)

Supply chain relationships in B2BInterrelated subprocesses and roles

B2B applications offer competitive advantages for supply chain management (SCM)

Virtual service industries in B2BTravel and tourism services

Real estate Online stock trading

Electronic payments Online financing

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Concepts, Characteristics, and Models of B2 EC (cont.)

Benefits of B2BEliminates paper and reduces administrative costsExpedites cycle timeLowers search costs and time for buyersIncreases productivity of employees dealing with buying and/or sellingReduces errors and/or improves quality of servicesReduces inventory levels and costsIncreases production flexibility, permitting just-in-time deliveryFacilitates mass customizationIncreases opportunities for collaboration

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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 extranet3 major methods for direct sale in the one-to-many model:

Selling from electronic catalogsSelling via forward auctionsOne-to-one selling under a negotiated, long-term contract

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Sell-Side Marketplaces (cont.)

Virtual sellers—sellers in the sell-side marketplace can be click-and-mortar manufacturers or intermediaries, usually distributors or wholesalersCustomer service

Milacron, Inc.Site contains 55,000 products, easy to use, securely handles selection, purchase, applicationTechnical service—expanded to provide a higher level of service

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Buying from Virtual Seller Bigboxx.com

Bigboxx.com.hk of Hong KongB2B office supply retailer servicesGoal—sell products in various SE Asian countries

Offers more than 10,000 itemsUses more than 300 suppliers

Company portal attractive, easy to useBrowse online catalogsUse search enginesPayments—cash or check upon delivery, automatic payments, credit card, purchasing card

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Bigboxx.com (cont.)

Delivery Owns trucks and warehousesDelivery scheduled onlineOrdering system integrated with SAP-based back-office system

Value-added servicesTrack status of orderCheck stock availabilityPromotionsCustomized pricesGroup accounts and central approvalStanding orders automatically activatedLarge number of reports and data available

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Exhibit 5.2Sell-Side B2B Marketplace

Architecture

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Direct Sales from Catalogs

Companies may:Offer one catalog for all customersCustomized catalog for each customerFacilitate the B2B direct sale by providing the buyer with a buyer customized shopping cart

Configuration and customizationEfficient customization for direct salesBusiness customers customize products, receive price quote, submit order

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Direct Sales from Catalogs (cont.)

BenefitsLower order-processing costsFaster ordering cycleFewer errors in ordering and product configurationLower search costs for buyersLower search costs for sellers Lower logistics costs

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Direct Sales from Catalogs (cont.)

Benefits (cont.)Ability to offer different catalogs and prices to different customers and to customize products and services efficiently

LimitationsChannel conflicts with distribution systemsHigh cost when traditional EDI usedLarge number of business partners is needed to justify system

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Selling Via Auctions

Using auctions on the sell-sideRevenue generationIncreased 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

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Selling Via Auctions (cont.)

Selling from own site when:Large companies that conduct auctions frequently don’t benefit from using intermediariesE-marketplace already in use, cost of adding auction not too high

Intermediary-oriented e-marketplace—an e-marketplace in which intermediaries operate

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Selling Via Auctions (cont.)

Using intermediaries when:No resources requiredOwn and control auction informationFast time to marketSearching and reporting

Search and report all auction activitiesStandard reports availableAdditional analysis of complex information

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Selling Via Auctions (cont.)

Billing and collectionAutomatic calculation of shipping weights and chargesPayment—encrypted credit card data

Billing information—easily downloaded into existing systems

Successful if:Sufficient number of loyal customersProducts well knownPrice not major purchasing criteria

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CISCO Connection Online (CCO)

Benefits—saves the company $363 million per year in technical support, human resources, software distribution, marketing materialCustomer service—Cisco Connection onlineOnline ordering—Internet Product Center builds virtually all products to orderOrder status—customer tools for finding answers to order status inquiries

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Cisco Connection Online (CCO) (cont.)

Benefits to CiscoReduced operating costs for order takingEnhanced technical support and customer serviceReduced technical support staff costReduced software distribution costsLead times reduced fro 4-10 days to 2-3 days

Benefits to customersQuick order configurationImmediate cost determinationCollaboration with Cisco staff

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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 servicesMarshallNetMarshall on the Internet (portal)Strategic European InternetElectronic Design CenterPartnerNetNetSeminarEducation and News Portal

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Marshall Industries (cont.)

Survival strategyContinuous improvement programs and innovationsTeam-based organization, flat hierarchy, decentralized decision makingProfit sharing compensation for salespeopleCRM highly promotedWeb-based services create value between suppliers and customersEC initiatives supported by:

Changing internal organizationChanging internal procedures

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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

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Spare parts business using traditional EDI Mechanic tells purchasing department parts are needed, purchase is approved, purchase is madeLarge airlines connect to Boeing's VANBoeing finds parts and delivers

Debut of PART on the InternetEncourages customers to order parts electronically—cheap, easy, fast50% of customers using Internet within first year

Boeing’s PART Marketplace (cont.)

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Benefits of PART onlineImproved customer serviceSignificant operating savingsNew sales opportunitiesCustomer service online reducedPortable access to technical drawings/supportPortable Maintenance Aid (PMA)—solves maintenance problems

Boeing’s PART Marketplace(cont.)

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Boeing’s PART Marketplace (cont.)

Benefits to Boeing’s customersIncreased productivity—less time searching for informationReduced costs—delays at gate reduced because all information is availableIncreased revenues—faster service provides time savings

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Buy Side Marketplaces:One-from-Many

Procurement methodsBuy from manufacturers, wholesalers, or retailers at their storefronts, from catalogs,and by negotiationBuy from the catalog of an intermediary Buy from an internal-buyer’s catalogConduct a bidding or tendering systemBuy at private or public auction sitesJoin a group-purchasing system

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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 organizationInefficiencies in procurement management

Purchasing personnel spend time and effort on procurement activitiesQualifying suppliersNegotiating prices and termsBuilding rapport with strategic suppliersCarrying out supplier evaluation and certification

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Buy Side Marketplaces:One-from-Many (cont.)

Buyers are sometimes too busy with the details of the smaller itemsOrganizations address this imbalance by implementing new purchasing models

Potential inefficiencies:DelaysPaying too much for rush ordersMaverick buying—unplanned purchases of items needed quickly, often from non-approved vendors or at higher prices

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Exhibit 5.4Traditional Procurement Process

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Buy Side Marketplaces:One-from-Many (cont.)

Goals of e-procurementIncrease purchasing agent productivityLower purchasing prices of itemsImprove information flow and managementMinimize maverick (unplanned) buyingImprove payment processStreamline purchasing process to make it simple and fast

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Buy Side Marketplaces:One-from-Many (cont.)

Goals of e-procurement (cont.)Reduce administrative processing cost per orderFind new suppliers and vendors to provide faster/cheaper goods and servicesIntegrate procurement process with budgetary control in an efficient and effective wayMinimize human errors in buying or shipping process

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Buy Side Marketplaces:One-from-Many (cont.)

Implementing e-procurementFit e-procurement into company EC strategyReview and change procurement process itselfProvide interfaces between e-procurement with integrated EISCoordinate buyer’s information system with the sellers

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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 modelRequest for quote (RFQ)—the “invitation” to a buy-side marketplace (reverse auction)

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Exhibit 5.6Buy-Side B2B Market Architecture

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Conducting Reverse Auctions

Reverse auctions administered from a company’s Web site

Bidding process lasts a day or moreBidders 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 RFQsUse software search-and-match agents to reduce the human burden in the bidding process

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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 contractorsList is submitted to FreeMarkets (freemarkets.com)

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Freemarkets.com (cont.)

FreeMarkets reduced the list to 50, based on considerations including:

Plant locationSize of supplierPlant capacityCustomer feedbackDetailed evaluation of the candidates

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Freemarkets.com (cont.)

3-hour auction conducted of online competitive bidding:

First bid was seen by all biddersUsing 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

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Procurement Revolution at GE

TPN (now part of gxs.com)Purchasing was inefficient—too many administrative transactions

Process for each requisition took 7 daysComplex and time-consumingCould only send out bids for 2 or 3 suppliers

Trading Process Network (TPN)—electronic bidsEntire process takes 7 days (for suppliers to bid)2 hours to send information to suppliersEvaluate and award bids same day

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Procurement Revolution at GE (cont.)

Benefits to GELabor declined 30% and material costs declined 5%-50%--wider base of suppliers onlineRedeployment of 50% of the staffTakes half the time to identify suppliers, prepare a request for bid, negotiate a price, and award the contractInvoices automatically reconciled reflecting modifications

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Procurement Revolution at GE (cont.)

Benefits to buyersWorldwide supplier partnershipsCurrent business partners

Strengthen relationshipsStreamline sourcing process

Rapid distribution of informationTransmit electronic drawings to multiple suppliersDecrease sourcing cycle timeQuick receipt and comparison of pricing bids

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Procurement Revolution at GE (cont.)

Benefits to suppliersIncreased sales volumeExpanded market reach, finding new buyersLowered administration costs for sales and marketing activitiesShortened requisition cycle timeImproved sales staff productivityStreamlined bidding process

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Aggregating Catalogs

Aggregating suppliers’ catalogs: an internal marketplace

Maverick buying to save time leads to high pricesAggregating all approved suppliers’ catalogs in one place

Reduced number of suppliersBuyers at multiple corporate locations

Fewer and remote suppliersLarger quantity/lower costs

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Buying from MasterCardInternational’s Internal Catalog

Online buying program at MasterCard:Allows corporate buyers to select goods and services from company’s electronic catalogGoal is to consolidate buying activities from multiple corporate sites, improve processing costs, reduce the supplier base

Procurement department defines:Scope of products or projects to buyInvites vendors to bid or negotiate prices

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MasterCard International (cont.)

Contract prices are stored in the internal electronic catalogFinal buyer at MasterCard compares available alternatives

Organizational purchasing decision coupled with an internal workflow management systemInternal electronic catalog is updated manually or by software agentsPayments are made with MasterCard’s corporate procurement cardBy 2002, the system was being used by more than 2,500 buyers

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Group Purchasing

Group purchasing—aggregation several buyers into volume purchases, so that better prices can be negotiated

Internal aggregationEconomy of scaleReduced transaction processing cost

External aggregationAggregating demand onlinePutting together orders from multiple buyers to make large volumes/lower costs

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Exhibit 5.7Group Purchasing Process

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Electronic Bartering

Bartering exchange—an intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants

Exchange of goods or services without the use of moneyExchange a surplus for other needBenefits:

Faster than manuallyEasier to match

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Collaborative Commerce (C-Commerce)

Collaborative commerce (c-commerce)—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 DesignPlanning Information sharingInformation discovery

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Collaborative Commerce (cont.)

Varieties of c-commerce:Joint design effortsForecasting Between and within organizations

Aids communication and collaboration between headquarters and subsidiaries, franchisers and franchiseesC-commerce platform provides e-mail, message boards, chat rooms, online corporate data access around the globe, no matter what the time zone

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Webcor Construction Goes Online with Its Partners

Webcor suffered from too much paperwork and poor communication with its:

ArchitectsDesignersBuilding ownersSubcontractors

Webcor’s goal: to turn its computer-aided design (CAD) drawings, memos, and other information into shared digital information

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Webcor (cont.)

Webcor uses ASP that hosts its projects on a secured extranetMajor problem was getting everyone to accept software:

ComplexUser training is necessary

Webcor was in a strong enough position to choose not to partner with anyone who would not use ProjectNet

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Webcor (cont.)

Webcor’s business partners can post send, or edit CAD drawings, digital photos, memos, status reports, project histories

Partners have instant access to new building drawingsCentral meeting place where users can both download and transmit information to all parties, all with a PC

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Retailer–Supplier Collaboration: Target Corporation

Target Corporation is a large retail conglomerate:

Conducts EC activities with about 20,000 trading partners1998—established an extranet-based system for those partners that were not connected to its VAN-based EDI.

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Target Corporation (cont.)

The extranet enabled the company to:Reach many more partners,Use many applications not available on the traditional EDI Streamline its communications and collaboration with suppliersBusiness customers to create personalized Web pages

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Continuous Replenishment: Warner-Lambert

Warner-Lambert (WL) served as a pilot site for a program called Collaborative Planning, Forecasting, and Replenishment (CPFR)

Shared strategic plans, performance data, and market insight with Wal-MartTrading partners collaborate on making demand forecasts

WL increased its products’ shelf-fill rate from 87 percent to 98 percent

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Warner-Lambert (cont.)

WL is involved in another collaborative retail industry project—Supply-Chain Operations Reference (SCOR):

Divides supply chain operations into partsGives a framework with which to evaluate the effectiveness of their processes along the same supply chains to:

ManufacturersSuppliersDistributorsRetailers

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Reduction of Design Cycle Time: Adaptec, Inc.

Microchip manufacturer supplying electronic equipment makers

Outsourced manufacturing tasksDelivery times exceeded their competitors

Solution to the problemExtranet and enterprise-level supply chain integrated softwareSignificantly reduced order-to-product delivery time

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Reduction of Product Development Time: Caterpillar, Inc.

Heavy machinery manufacturer uses extranet

Request for customized component directly to designers and suppliers ship to buyersConnect engineering and manufacturing division with worldwide

Suppliers Factories Distributors CustomersOverseas

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Barriers to C-Commerce

C-commerce is moving ahead fairly slowly because:

Technical reasons involving integration, standards, and networksSecurity and privacy concerns over who has access control of information stored in a partner’s databaseInternal resistance to new models and approachesLack of internal skills to conduct c-commerce

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Interorganizational Collaboration at Nygard of Canada

Nygard has become a leader in adopting IT and e-commerce in the apparel industry

Company stays competitive by using EC to control costs of labor and manufacturingDeveloped an ERP and supply chain management that controls all internal operations, purchasing, product development, accounting, production planning, sales

This enabled the company to develop tight integration with its trading partners

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Nygard of Canada (cont.)

The moment that a customer buys a pair of pants at a partner’s retail store:

Information moves from the POS terminalAutomatically generates a reorder at Nygard

SCM:Matches customers’ orders with the right fabricsSearches the market pool for the most efficient combinations of other material for use with those fabrics

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Nygard of Canada (cont.)

Sales trigger orders

Manufacturing automatically industries, and global manufacturers are willing to operate with razor-thin margins as fabrics, zippers, and buttons

The moment that raw material is used, an automatic reorder of the material is generated

Allows just-in-time productionQuick order delivery (sometimes same day)

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Nygard of Canada (cont.)

Web-based control system enables the company to:

Conduct detailed profitability studiesDecisions are evaluated by impacts on the bottom lineDecision support systems (DSS) models are used for this purpose

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Infrastructure for B2B

Server to host database and applicationsSoftware for executing sell-side (catalogs)Software for conducting auctions and reverse auctionsSoftware for e-procurement (buy-side)Software for CRMSecurity hardware and softwareSoftware for building a storefrontSoftware for building exchangesTelecommunications networks and protocols

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Extranet and EDI

Value-added networks (VANs)—private, third-party-managed networks that add communications services and security to existing common carriers; used to implement traditional EDI systems

Internet-based EDI—EDI that runs on the Internet and so is widely accessible to most companies, including SMEs

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Extranet and EDI

Extranets—secured networks (by VPN), usually Internet-based, that allow business partners to access portions of each other’s intranets; “extended intranets.”

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Integration

Integration with existing information systems issues

Intranet-based work flowDatabase management systems (DMBS)Application packagesERPBack-end sell-side integration works for sellers but not buyers and vice versa

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Integration (cont.)

Integration with business partnersEasy integration with one company-centric sideNot easy to integrate for many buyers or sellersNeed buyer owned shopping cart that can interface with back-end information systems

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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 neededWeb is based on the standard communication protocols useful only for displaying static visual Web pages:

TCP/IPHTTP HTML

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The Role of XML in B2B Integration (cont.)

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 with speech recognition systems

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XML Unifies Air Cargo Tracking System

B2B intermediary, TradeVan Information Services of Taiwan provides information services about the cargo flights of different airlines

Different information systems have different query results XML facilitates data exchange between heterogeneous databasesInformation can be presented on wireless application protocol (WAP)-based cell phones

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Air Cargo Tracking System (cont.)

System is expected to:Reduce delays significantlyBenefit of all members of the supply chainReturns a standardized yet personalized presentation for different airlinesEnables customs brokers to reduce the cycle time by preparing declarations of imports faster

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Air Cargo Tracking System (cont.)

Buyers and other supply chain partners can schedule production lines with precision and in advanceQuality of door-to-door delivery companies is improved through fast communication

Answers to queries can be derived much fasterImproves the supply chain by reducing:

Delivery lead timesInventory levels

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The Role of Software Agentsin B2B EC

Agent’s role in the sell-side marketplaceB2C comparison-shoppingB2B agents collect information from sellers’ sites for buyers

Agent’s role in the buy-side marketplaceAssisting large number of buyers requesting quotes from multiple potential suppliers in buy-side

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Managerial Issues

Can we justify the cost?Which vendor(s) should we select?Which model(s) should we use?Do we need B2B marketing?Should we reengineer our procurement system?What restructuring will be required for the shift to e-procurement?What integration would be useful?What are the ethical issues in B2B?

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Summary

The B2B fieldThe major B2B modelsThe characteristics of sell-side marketplacesSell-side intermediariesThe characteristics of buy-side marketplacesForward and reverse auctionsB2B aggregation and group purchasingCollaborative ECCharacteristics of Internet-based EDI and the role of XML