Ecommerce Chap 06

1© Prentice Hall, 2000

Chapter 6Business-to-Business Electronic Commerce


Learning Objectives

Distinguish between B2B and B2C Identify the relationship between B2B and

supply chain managementClassify 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


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.)


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


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.)


Supply ChainDefinition

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


Characteristics of B2B EC

Key Entities of B2B EC Buying 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


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 Management Purchasing company’s point of view : a medium of

achieving the goals of procurement management Procurement management’s point of view : the

buyer-oriented market can be effective Using a RFQ-bidding mechanism


Relationship with Electronic Intermediaries Similar to the B2B electronic intermediaries, but

the customers are businesses Also, special intermediaries for matching buyers

and sellers, bartering etc.

Relationship with intranet are very importantRelationship 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.)


Models of B2B ECSupplier-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


Buyer-Oriented Market Place Buyer opens a market on its own

server and invites potential suppliers to bid on RFQs

Offer opportunity to committed suppliers

BUT as the number of such sites increase, only very big buyers can afford to fully utilize this approach

OVERCOME with the aid of software agents

Models of B2B EC (cont.)

BusinessSuppliers

Buyer’sProducts

Catalog, RFQ

Suppliers’Bids, Information

Buyer’sElectronic Mall


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


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


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


Case Study of Customer-Oriented Market Place: GE’s TPN Post

Provides a chance for sellers to participate in the bidding process of GE using the following procedure: Buyers prepare bidding project information Buyers post the bidding projects on the Internet Buyers identify potential suppliers Buyers invite suppliers to bid on projects Suppliers download the project information from the Internet Suppliers electronically submit bids for projects Buyers evaluate the suppliers’ bids and negotiate online to

achieve the ‘best deal’ Buyers accept the bid that best meets their requirements


The benefits of joining GE TPN Post As buyers

Identify and build partnerships with new suppliers worldwide

Strengthen relationships and streamline sourcing processes with current business partners

Rapidly distribute information and specifications to business partners

Transmit electronic drawings to multiple suppliers simultaneously

Cut sourcing cycle times and reduce costs for sourced goods

Quickly receive and compare bids from large number of suppliers to negotiate better prices

As SellersBoost SalesExpand market reachCut costs for sales and

marketing activitiesShorten the selling cycleImprove sales

productivityStreamline the bidding

process

Case Study of Customer-Oriented Market Place: GE’s TPN Post (cont.)


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


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.)


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 costswith 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 opportunitythrough 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 relay on the manufacturers?

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


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


FedEx InterNetShip 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.)


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 CostsWithout 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 ServiceCustomers 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.)


Business-to-Business Auctions

Benefits New sales channel New venue for disposing excess, obsolete products Increase page views; viewers like to watch auctions Acquire and retain members

Types Independent auctions: using 3rd party auction site Community auctions: many sellers and buyers

simultaneously (Electricity, Flowers) Private auctions: large distributor (Ingrain Micro)


What Auction Intermediary Provides? All necessary infrastructure Company controls all auction information

(software provided) All procedures for auctions Fast deployment time Search engine Trust mechanism (escrow, insurance) Activity report generation Billing and collection

Business-to-Business Auctions (cont.)


EDI - The Infrastructure for B2B

A network for transmitting standard transactionsA paperless TPS environmentRoutine documents; purchase order, billings,

shipping manifestsDocuments translated into standard business

languageIn use since the 1970s on private VANs. Save time,

reduce errors in data entry, save money, consistent information flow

Provide strategic advantages


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 )


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


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.)


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.



Reasons Using the Internet can cut communication cost by

over 50%. 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.

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

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



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


An Architecture of Intelligent Agents forElectronic Commerce: UNIK-AGENT Approach

The Role of Agents in B2B EC (cont.)

AGENT

Problem Solver Communication Controller

Problem SolvingManager

Solution Engines

DataBase

KnowledgeBase

MessageBase

Directory

OrderAgent

Message Manager

Outgoing Msg.

Incoming Msg.

Message Queue Mgt.

Individual Manager

Directory Consulting

Message Gate


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


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.


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


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


Buyer Oriented Directory


Current B-to-C Platform Prospective B-to-B PlatformSeller Oriented Directory popular

To big buyers, Buyer Oriented Directory should be offered

Major motivation of EC is sales promotion

Additional motivation is the re-engineering acquisition process

Either buyer or seller oriented directory is developed

Intermediary directory is necessary to coordinate between seller and buyer oriented directories


Formal Contract with Bidding Process



Ordering without formal

contract is enough for order

fulfillment

Formal contract with electronic documents that include specific terms and conditions is necessary

Free contract protocol Legitimate contract protocol

needs to be conformed

Electronic version of

traditional bidding and

auction are implemented

More creative contract protocol

can be innovated


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)


Agent Based Commerce



Human interactively involved in the

buying decision

Buyer’s and seller’s software agents assist communication to minimize human’s involvement

Software agent in one site cannot understand the norm of the counterpart agents

Mutually agreed contract type conformation is necessary to effectuate the communication between agents

Buyers have to search around the seller’s products catalog configuring manually

Seller agents assist the configuration process based on the buyer’s requirement specification

Seller’s data mining is popular Buyer’s data mining is additionally necessary


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


Issues in B2B Advertisement and Marketing

Finding and retaining business customersMaking them buyReaching organizational buyers (functional,

corporate)Building relationship marketing in B2BAdvertisement, mailing lists, strategiesMailing lists: house, response, compiledThe role of the CD-ROMMarketing databases and e-mail lists


Internet Marketing Strategies

Generating and qualifying leads with the Internet

Using Internet events to promote products and services

Executing instant fulfillment on the InternetGenerating orders through the InternetEnhancing customer relationships with the

Internet


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

Education

Ecommerce Chap 06