1 Chapter 7 Business-to-Business Electronic Commerce FEB: E-Commerce (EBS 2053) Lecturer: Puan Asleena Helmi Date: 17/08/01

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Chapter 7Business-to-Business Electronic Commerce

FEB: E-Commerce (EBS 2053)

Lecturer: Puan Asleena HelmiDate: 17/08/01

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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

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• 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

Learning Objectives (cont.)

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Trading Process Network (TPN)Post in General Electric

• General Electric (GE)

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.

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.

Its purchasing was inefficient, involved too many administrative transactions

GE is conducting electronic bids, no paperwork

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– 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.

Benefits of using TPN

Trading Process Network (TPN)Post in General Electric (cont.)

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Supply Chain• Definition

– All activities associated with the flow and transformation of goods from raw materials to end users

2nd TierSupplier

Upstream Internal Downstream

2nd TierSupplier

2nd TierSupplier

1st TierSupplier

1st TierSupplier

Assembly/Manufacturing and

Packaging

DistributionCenters

Retailers

Customers

GrainProducer

ProcessingFacility

Packaging Distributor

Store

Customers

CorrugateManufacturer

LumberCompany

LabelManufacturer

GrainCereal

Packaged Cereal

LabelsWord

Paperboard

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Push vs Pull Model

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Characteristics of B2B EC

• Key Entities of B2B ECBuying 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

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• 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

Characteristics of B2B EC (cont.)

Relationship with Procurement ManagementPurchasing company’s point of view : a medium of achieving the goals of procurement managementProcurement management’s point of view : the buyer-oriented market can be effectiveUsing a RFQ-bidding mechanism

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• Relationship with Electronic Intermediaries– Similar to the B2C 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

Characteristics of B2B EC (cont.)

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Models of B2B ECI) Supplier-Oriented Market Place

– Individual consumers and business buyers use the same supplier-provided market place (May pay different prices due to quantity discount)

B2C E-commerce

Consumers

B2B E-Commerce

BusinessCustomers

Supplier’sProducts Catalog

Customer’sOrder Information

Supplier’sElectronic Mall

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II) Buyer-Oriented Market PlaceBuyer opens a market on its own server and invites potential suppliers to bid on RFQsOffer opportunity to committed suppliersBUT as the number of such sites increase, only very big buyers can afford to fully utilize this approachOVERCOME with the aid of software agents

Models of B2B EC (cont.)

BusinessSuppliers

Buyer’sProducts

Catalog, RFQ

Suppliers’Bids, Information

Buyer’sElectronic Mall

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III) 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

Models of B2B EC (cont.)

BusinessCustomers

BusinessSuppliers

SharedProducts Catalogs

Supplier’sProduct Information

Intermediary’sElectronic Mall

Customer’sOrder Information

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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

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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

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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

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• 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

Case Study of Intermediary-Oriented Market Place:

Boeing’s PART (cont.)

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• 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 rely on the manufacturers?

Case Study of Intermediary-Oriented Market Place: Boeing’s PART (cont.)

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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

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• 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

Just-In-Time Delivery:Fed Express InterNetShip (cont.)

FedEx InterNetShip

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• 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

Just-In-Time Delivery:Fed Express InterNetShip (cont.)

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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

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• Typical Flow of EDI Messages– one order - seven messages!!

EDI - The Infrastructure for B2B (cont.)

RFQ = Request for Proposal P.O. = Purchasing Order

Buyer Supplier

RFQ

Response to RFQ

Purchase Order

P.O. Acknowledgement

Purchase Order Change

P.O. Change Acknowledgement

Functional Acknowledgement(for each Transaction )

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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

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• 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

From Traditional to Internet-based EDI (cont.)

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• 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.


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• Reasons1) Using the Internet can cut communication cost

by over 50%.2) 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.

3) Internet-based EDI can compliment or replace current EDI systems.

4) Internet tools such as browsers and search engines are very user friendly and most users today know how to use them.


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What are software agents?

• Software agents are mainly used to aid the comparison-shopping process.

• The major role of software agents is collecting data from multiple commercial sites.

• The information collected from the seller-oriented marketplace can then be used both by consumers and business buyers.

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The Role of Agents in B2B EC

Buyer Agent B1 Buyer Agent B2

Seller Agent S1 Seller Agent S2 Seller Agent S3 Seller Agent S3

Requirement of Human Buyer Requirement of Human Buyer

Human Seller 1

Human Seller 2

Human Seller 3

Human Seller 4

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1) Management of Buyer Information at Buyer Sites to Integrate with Corporate Information Systems

The Role of Agents in B2B EC (cont.)

Current B-to-C Platform Prospective B-to-B PlatformBuyer’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.

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2) Comparison Shopping with Buyer’s Own Electronic Bag


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

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3) Just-in-Time Delivery



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

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4) Organizational Purchasing Decision



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)

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5) Secure Large Amount Payment



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

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

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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• Marketing databases and e-mail lists

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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

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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