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Prentice Hall, 20022
Learning Objectives
Describe the B2B fieldDescribe the major types of B2B modelsDescribe the characteristics of the sell-side marketplaceDescribe the sell-side intermediaries modelsDescribe the characteristics of the buy-side marketplace and e-procurement
Prentice Hall, 20023
Explain how forward and backward auctions work in B2BDescribe B2B aggregation and group purchasing modelsDescribe collaborative e-commerceUnderstand issues concerning the implementation of company-centric B2BDistinguish Internet-based EDI from traditional EDI
Learning Objectives (cont.)
Prentice Hall, 20024
General Motors’ B2B Initiatives
EC initiatives—build-to-order project to be in place by 2005 reducing inventory of finished cars
Selling capital assetsTradeXchange online auctions of items like used machines for manufacturing
Significantly decreases time for salesIncreases dollar amount of the sales
Prentice Hall, 20025
General Motors’ B2B Initiatives
EC initiatives at TradeXchangeBuying commodity products--$1 billion annual expenditure for direct and indirect products
Traditional processLength of time measured in weeksCost prohibited the number of bids
Reverse auction—automated processInternet “open bid”—many suppliers take partJob is awarded quicklyPrice to GM significantly lower
Prentice Hall, 20026
Concepts and Characteristics of B2B EC
B2B EC definedTransaction conducted electronically between business over the networks
InternetExtranetsIntranetsPrivate networks (e.g., EDI)
Automated trading improves the process
Prentice Hall, 20027
Concepts and Characteristicsof B2B EC (cont.)
Market size and contentExpected to grow from $1.1 trillion in 2003 to $10 trillion by 2005Percentage of Internet-based B2B from 2.1% in 2000 to 10% in 2005
Private and public e-marketplacePrivate—one-to-many modePublic—many-to-many mode
Prentice Hall, 20028
Concepts and Characteristicsof B2B EC (cont.)
How is B2B conducted?Directly between buyer and sellerVia an online intermediaryAlong the supply chainWith or without intermediaries
Types of transactionsSpot buying—determined by dynamic supply and demandStrategic sourcing—long term contracts
Prentice Hall, 200210
Concepts and Characteristicsof B2B EC (cont.)
Supply chain relationshipsInterrelated subprocesses and roles
Acquisition of materialsProcessing products and servicesMoving to distributorsPurchase by consumer
Traditional process managed through paper transactionsB2B applications offer competitive advantages for supply chain management (SCM)
Prentice Hall, 200211
Concepts and Characteristicsof B2B EC (cont.)
Entities of B2B ECSelling company—marketing management perspectiveBuying company—procurement management perspectiveElectronic intermediaries—optional third party directory service provider (scope of service may be extended to order fulfillment) Trading platforms—pricing and negotiation protocol (auctions, reverse auctions)
Prentice Hall, 200212
Concepts and Characteristicsof B2B EC (cont.)
Entities of B2B EC (cont.)Payment services—mechanism for transferring money to sellersLogistics providers—logistics to complete transaction (packaging, storage, delivery)Network platforms—Internet, VAN, intranet, extranetProtocols of communication—EDI or XMLBack-end integration—connecting to ERP systems, databases, functional applications
Prentice Hall, 200213
Concepts and Characteristicsof B2B EC (cont.)
ProductCustomerSupplierProduct processTransportation
InventorySupply chainCompetitorSales and marketingSupply chain process and performance
Information processed in B2B
Prentice Hall, 200214
Concepts and Characteristicsof B2B EC (cont.)
Electronic intermediaries in B2BConsumers and business may share intermediariesBusinesses may use different intermediaries with different suppliers
Benefits of B2B modelsEliminate paper-based systemsExpedite cycle timeReduce errorsIncrease employee productivityReduce costsIncrease customer service and partnership management
Prentice Hall, 200215
B2B Models
Company-centric modelsSell-side marketplace (one-to-many)Buy-side marketplace (many-to-one)
Many-to-many marketplaces—the exchange
Buyers and sellers meet to tradeTrading communitiesTrading exchangesExchanges
Prentice Hall, 200216
B2B Models (cont.)
Other B2B models and servicesFor the purpose of sellingFor the purpose of buyingValue chain integratorsValue chain service providersInformation brokers
Vertical vs. horizontal marketplacesVertical—one industry or industry sectionHorizontal—service or product used in several types of industries
Prentice Hall, 200217
B2B Models (cont.)
Virtual service industries in B2BTravel and tourism servicesReal estateElectronic paymentsOnline stock tradingOnline financingOther online services
Prentice Hall, 200219
Sell-Side Marketplaces:One-to-Many
Virtual sellers—Bigboxx.com.hk of Hong Kong
B2B office supply retailer servicesLarge corporate clientsMedium corporate clientsSmall offices
Goal—sell products in various SE Asian countriesOffers more than 10,000 itemsUses more than 300 suppliers
Prentice Hall, 200220
Sell-Side Marketplaces:One-to-Many (cont.)
Virtual sellers—Bigboxx.com.hk of Hong Kong (cont.)
Company portal attractive, easy to useBrowse online catalogsUse search enginesPayments
Cash or check upon deliveryAutomatic paymentsCredit cardPurchasing card
Prentice Hall, 200221
Sell-Side Marketplaces:One-to-Many (cont.)
Virtual sellers—Bigboxx.com.hk of Hong Kong (cont.)
Delivery Owns trucks and warehousesDelivery scheduled online
Same day (within an hour)Specifically scheduled time
Ordering system integrated with SAP-based back-office system
Prentice Hall, 200222
Sell-Side Marketplaces:One-to-Many (cont.)
Virtual sellers—Bigboxx.com.hk of Hong Kong (cont.)
Value-added servicesTrack status of orderCheck stock availabilityPromotionsCustomized pricesGroup accounts and central approval—for businesses with multiple branchesStanding orders automatically activatedLarge number of reports and data available
Prentice Hall, 200223
Sell-Side Marketplaces:One-to-Many (cont.)
Customer serviceGeneral Electric
20 million calls/year about appliancesReduced cost of each call from $5 to $0.20
Milacron, Inc.Site contains 55,000 products
Easy to useSecurely handles selection, purchase, application
Technical service—expanded to provide a higher level of service than previously available at the site
Prentice Hall, 200224
Sell-Side Marketplaces:One-to-Many (cont.)
DellIntel
IBMCisco
Direct sales from catalogsConfiguration and customization
Efficient customization for direct salesBusiness customers
Customize productsReceive price quoteSubmit order
Successful cases
Prentice Hall, 200225
Sell-Side Marketplaces:One-to-Many (cont.)
Direct sales from catalogsBenefits
Reduces costs (to buyers and sellers) and errors during the processSpeeds up order cycleAbility to customize productsOffer different prices to different customers
Prentice Hall, 200226
Sell-Side Marketplaces:One-to-Many (cont.)
Direct sales from catalogs (cont.)Limitations
Channel conflicts with distribution systemsHigh cost when traditional EDI usedLarge number of business partners is needed to justify system
Prentice Hall, 200227
Selling Side: Auctions and Other Models
Forward auctions—quick disposal of itemsRevenue generationIncreased page viewsMember acquisition and retention—bidding transactions result in additional registered members
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
Prentice Hall, 200228
Selling Side:Auctions and Other Models (cont.)
Using intermediaries when:No resources requiredOwn and control auction informationFast time to market
Searching and reportingSearch and report all auction activitiesStandard reports availableAdditional analysis of complex information
Prentice Hall, 200229
Selling Side:Auctions and Other Models (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
Prentice Hall, 200230
Sell-Side Case:CISCO Connection Online (CCO)
Benefits—saves the company $363 million per year in:
Technical supportHuman resourcesSoftware distributionMarketing material
Prentice Hall, 200231
Cisco Connection Online (CCO) (cont.)
Customer service—Cisco Connection online
Online ordering—Internet Product Center builds virtually all products to order
Order status—customer tools for finding answers to order status inquiries
Prentice Hall, 200232
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
Prentice Hall, 200233
Cisco Connection Online (CCO) (cont.)
Benefits to customersQuick order configurationImmediate cost determinationCollaboration with Cisco staff
Prentice Hall, 200234
Sell-Side Intermediaries
Marshall Industries—(a subsidiary of AvnetMarshall) 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
Prentice Hall, 200235
Sell-Side Intermediaries (cont.)
Marshall Industries—a subsidiary or AvnetMarshall (cont.)
Survival strategyContinuous improvement programs and innovationsTeam-based organization, flat hierarchy, decentralized decision makingProfit sharing compensation for salespeople
Prentice Hall, 200236
Sell-Side Intermediaries (cont.)
Marshall Industries—a subsidiary of AvnetMarshall (cont.)
Survival strategyCRM highly promotedWeb-based services create value between suppliers and customersEC initiatives supported by:
Changing internal organizationChanging internal procedures
Prentice Hall, 200237
Sell-Side Intermediaries (cont.)
Boeing’s PARTActs as an intermediary between the airlines and parts’ suppliersProvides a single point of online access through which airlines and parts’ providers can access the data neededGoal: provide its customers with one-stop shopping for online parts and maintenance information and ordering capability
Prentice Hall, 200238
Boeing’s PARTSpare parts business using traditional EDI
Mechanic tells purchasing department parts are needed, purchase is approved, purchase is made
Large airlines connect to Boeing's VAN
Boeing finds part and delivers
Debut of PART on the InternetEncourages customers to order parts electronically—cheap, easy, fast50% of customers using Internet within first year
Sell-Side Intermediaries (cont.)
Prentice Hall, 200239
Boeing’s PARTBenefits of PART online
Improved customer serviceSignificant operating savingsNew sales opportunitiesCustomer service online reduced
Phone calls (purchasing, order status etc.)Data entry
Sell-Side Intermediaries (cont.)
Prentice Hall, 200240
Sell-Side Intermediaries (cont.)
Boeing’s PARTPortable access to technical drawings/support
Boeing On Line Data (BOLD) provides availability to:
Engineering drawings ManualsCatalogsOther technical information
Portable Maintenance Aid (PMA)—solves maintenance problems
Prentice Hall, 200241
Sell-Side Intermediaries (cont.)
Boeing’s PARTBenefits to Boeing’s customers
Increased productivity—less time searching for informationReduced costs—delays at gate reduced because all information is availableIncreased revenues—faster service provides time savings
Prentice Hall, 200242
Buy Side: One-from-Many,E-Procurement
Purchasing agents (buyers)Direct purchasing
Use of material is scheduledNot a shelf item
Indirect purchasingMROsNonproduction materials
Inefficiencies in procurement management of indirect materials
Prentice Hall, 200243
Figure 6-3A Traditional Purchasing Process Flow
Source: ariba.com, February 2001.
Prentice Hall, 200244
Buy Side: One-from-Many,E-Procurement (cont.)
Innovative procurement managementInnovative purchasing as strategic approach to increase profit marginsWeb facilitation includes:
Electronic tenderingVolume purchasingAggregating supplier catalogs at buyer’s siteGroup purchasingOthers
Prentice Hall, 200245
Buy Side: One-from-Many,E-Procurement (cont.)
Goals of procurement reengineeringIncrease purchasing agent productivityLower purchasing prices of itemsImprove information flow and managementMinimize maverick (unplanned) buyingImprove payment processStreamline purchasing process to make it:
SimpleFast
Prentice Hall, 200246
Buy Side: One-from-Many,E-Procurement (cont.)
Goals of procurement reengineering (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
Prentice Hall, 200248
Buy Side: One-from-Many,E-Procurement (cont.)
Direct vs. indirect sourcingTools to automate purchasing goods
Direct or mission critical80% of manufacturer’s expenditureLong-term relationship with vendor of known quality goodsTight integration with suppliers along supply chain
Indirect—use of public exchanges for indirect sourcing
Prentice Hall, 200249
Buy Side: Reverse Auctions
Pre-Internet Reverse auction processPrepare description of product to be producedAnnounce project via ads, mail, telephoneSend detailed information to interested vendorsVendors prepare proposalsBidders submit document proposalsProposals evaluatedProblems:
LawsExpensiveErrors
Prentice Hall, 200250
Buy Side: Reverse Auctions (cont.)
Web-based reverse auction processBuyers prepare bidding project informationBuyers post project on portalIdentify potential suppliersInvite suppliers to bidSuppliers download project informationSuppliers submit electronic bidReverse auction in real-time, or it can take a few daysBuyers evaluate and award contract
Prentice Hall, 200251
Buy Side: Reverse Auctions (cont.)
Web-based reverse auction processBenefits:
Electronic process is fasterAdministratively much less expensiveEnables location of cheapest possible products
Prentice Hall, 200252
Procurement Revolution at GE
TPN at GE Lighting DivisionPurchasing 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
Prentice Hall, 200253
Procurement Revolution at GE (cont.)
Benefits to GEInvolvement in procurement process
Labor declined 30%Material costs declined 5%-20%--wider base of suppliers online
Redeployment60% of the staffSourcing department concentrates on strategic activities instead of paperwork, etc.
Prentice Hall, 200254
Procurement Revolution at GE (cont.)
Benefits to GETime to identify suppliers, prepare a request for bid, negotiate a price, and award the contract
Was 18-23 days Now 9-11 days
Invoices automatically reconciled reflecting modificationsGE procurement departments share information about their best suppliers across the world
Prentice Hall, 200255
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
Prentice Hall, 200256
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
Prentice Hall, 200257
Procurement Revolution at GE (cont.)
Deployment strategiesStart EC in one division and slowly go to all divisionsUse the site as public bidding marketplace to generate commission income to GE
Prentice Hall, 200258
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
Prentice Hall, 200259
Group Purchasing
Group purchasing—orders from several buyers are aggregated
Internal aggregationEconomy of scaleReduced transaction processing cost
External aggregationAggregating demand onlinePutting together orders from multiple buyers to make large volumes/lower costs
Prentice Hall, 200260
Electronic Bartering
Electronic barteringExchange of goods or services without the use of moneyExchange a surplus for other needBartering exchange
Submit surplus to exchange for pointsPoints used to buy what company needs
Benefits:Faster than manuallyEasier to match
Prentice Hall, 200261
Collaborative Commerce (C-Commerce)
Web-based systems used between and among suppliers for:
CommunicationDesignPlanning Information sharingInformation discovery
Prentice Hall, 200262
Collaborative Commerce(C-Commerce) (cont.)
Webcore construction goes online with its partners
Prentice Hall, 200264
Collaborative Commerce(C-Commerce) (cont.)
Reduce design cycle time by connecting suppliers: Adaptec, Inc.
Microchip manufacturer supplying electronic equipment makers
Outsources manufacturing tasksDelivery times exceeded their competitors
Solution to the problemExtranet and enterprise-level supply chain integrated softwareSignificantly reduced order-to-product delivery time
Prentice Hall, 200265
Collaborative Commerce(C-Commerce) (cont.)
SuppliersDistributorsOverseas
Factories Customers
Reduce product development time by connecting suppliers: Caterpillar, Inc.
Heavy machinery manufacturer uses extranet
Request for customized component directly to designers and suppliers ship to buyers
Connect engineering and manufacturing division with worldwide
Prentice Hall, 200266
Collaborative Commerce(C-Commerce) (cont.)
Other examples of c-commerceTricon Restaurant International—global brand marketing managementRE/MAX—real estate franchiser improved communication and collaboration between independent ownersMarriott International—links corporations, franchising partners, suppliers, customersNygard of Canada—interorganizational collaboration
Prentice Hall, 200267
B2B Infrastructure
Server to host database and applicationsSoftware for executing sell-side (catalogs)Software for conducting auctions and reverse auctionsSoftware for e-procurement (buy-side)
Prentice Hall, 200268
B2B Infrastructure (cont.)
Software for CRMSecurity hardware and softwareSoftware for building a storefrontTelecommunications networks and protocols
Prentice Hall, 200269
Extranet and EDI
Secure interorganizational networksTraditional EDI limits accessibility of small companiesInternet-based EDI offers wide accessibility to companies around the world
Prentice Hall, 200270
Integration
ERP softwareCustomer, supplier, and other databasesLegacy systemsCatalog (product) informationInventory systemsSales statisticsDecision support systems (DSS) and SCM applications
Prentice Hall, 200271
Integration (cont.)
Integration with existing information systems
Issues in integrating with back-end information systems:
Intranet-based work flowDatabase management systems (DMBS)Application packagesERPBack-end sell-side integration works for sellers but not buyers and vice versa
Prentice Hall, 200272
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
Prentice Hall, 200273
B2B Agents
Figure 6-7
Intelligent Agent-Based Commerce
Source: J. K. Lee and W. Lee (1997).
Prentice Hall, 200274
Implementation Issues
Justification and prioritizationMust conduct cost benefit analysis of proposed projectsInclude organizational impacts
Possible channel conflictsDealing with resistance to change due to processes reengineering
Cost-benefit analysis related to:Finding B2B opportunitiesPrioritizing potential initiatives
Prentice Hall, 200275
Implementation Issues (cont.)
Vendor selectionPrimary vendor uses its software and procedures, adds partners as neededIntegrator mixes and matches existing products and vendors to create “best of the breed”
Affiliate programsReferral programUseful for B2B intermediaries
Prentice Hall, 200276
Implementation Issues (cont.)
Implementing e-procurementFit e-procurement into EC strategyReview and change procurement process itselfIf ERP or SCM is in place—integrate e-procurement, If not in place—BPR before implementationCoordinate buyer’s information system with seller’s
Prentice Hall, 200277
Managerial Issues
B2B marketing—sell-side marketplaces require advertisement and incentivesWhich models to use and when—need for implementation strategies and prioritizationPurchase process reengineering (BPR)
Establish buy-side marketplace on its server if volume is big enough to attract major vendorsJoin third-party intermediary-oriented marketplace if volume is small
Prentice Hall, 200278
Managerial Issues (cont.)
Integration—trading in e-marketplaces is interrelated with logistics
Particularly true in many-to-many exchangesCompany-centric marketplaces must integrate:
Logistics Other support services
Prentice Hall, 200279
Managerial Issues (cont.)
Business ethicsAccessing unauthorized areas in the tracing system should not be allowedPrivacy of partners should be protected technically and legally
Auctions—both forward and reverseBenefits are substantialImplementation is relatively simpleConsiderable flexibility in implementation