Company Centric B2B and Collaborative Commerce

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Company Centric B2B and Collaborative Commerce
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Learning Objectives

• Describe the B2B field
• Describe the major types of B2B models
• Describe the characteristics of the sell-side
  marketplace
• Describe the sell-side intermediary models
• Describe the characteristics of the buy-side
  marketplace and e-procurement

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Learning Objectives (cont.)

• Explain how forward and backward auctions work in
  B2B
• Describe B2B aggregation and group purchasing
  models
• Describe collaborative e-commerce and
  interorganizational systems
• Describe infrastructure and standards
  requirements for B2B

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Concepts, Characteristics, and Models of B2 EC

• Basic B2B Concepts
• Business-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 Content
• Expected 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 Characteristics
• Parties to the transaction
• Online intermediaryan online third-party that
  brokers a transaction between a buyer and a
  seller can be virtual or click-and-mortar
  buyers sellers
• Types of transactions
• Spot buyingthe purchase of goods and services as
  they are needed, usually at prevailing market
  prices
• Strategic sourcingpurchases 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 materials
• Direct materialsmaterials used in the production
  of a product (e.g., steel in a car or paper in a
  book)
• Indirect materialsmaterials 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 trade
• Vertical marketplacesmarkets that deal with one
  industry or industry segment (e.g., steel,
  chemicals).
• Horizontal marketplacesmarkets 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 Types
• Sell sideone seller to many buyers
• Buy sideone buyer from many sellers
• Exchangesmany sellers to many buyers
• Collaborative commercecommunication and sharing
  of information, design, and planning among
  business partners

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Types of B2B E-Commerce
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One-to-Many and Many-to-One Company-Centric
Transactions

• Company-centric ECe-commerce that focuses on a
  single companys buying needs (many-to-one, or
  buy-side) or selling needs (one-to-many, or
  sell-side)
• Private e-marketplacesmarkets 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

• Exchangesmany-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 exchanges
• Public e-marketplacesthird-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 B2B
• Interrelated subprocesses and roles
• B2B applications offer competitive advantages for
  supply chain management (SCM)
• Virtual service industries in B2B
• Travel 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 B2B
• Eliminates paper and reduces administrative costs
• Expedites cycle time
• Lowers search costs and time for buyers
• Increases productivity of employees dealing with
  buying and/or selling
• Reduces errors and/or improves quality of
  services
• Reduces inventory levels and costs
• Increases production flexibility, permitting
  just-in-time delivery
• Facilitates mass customization
• Increases opportunities for collaboration

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Sell-Side MarketplacesOne-to-Many

• Sell-side e-marketplacea Web-based marketplace
  in which one company sells to many business
  buyers, frequently over an extranet
• 3 major methods for direct sale in the
  one-to-many model
• Selling from electronic catalogs
• Selling via forward auctions
• One-to-one selling under a negotiated, long-term
  contract

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Sell-Side Marketplaces (cont.)

• Virtual sellerssellers in the sell-side
  marketplace can be click-and-mortar manufacturers
  or intermediaries, usually distributors or
  wholesalers
• Customer service
• Milacron, Inc.
• Site contains 55,000 products, easy to use,
  securely handles selection, purchase, application
• Technical serviceexpanded to provide a higher
  level of service

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Sell-Side B2B Marketplace Architecture
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Direct Sales from Catalogs

• Companies may
• Offer one catalog for all customers
• Customized catalog for each customer
• Facilitate the B2B direct sale by providing the
  buyer with a buyer customized shopping cart
• Configuration and customization
• Efficient customization for direct sales
• Business customers customize products, receive
  price quote, submit order

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Direct Sales from Catalogs (cont.)

• Benefits
• Lower order-processing costs
• Faster ordering cycle
• Fewer errors in ordering and product
  configuration
• Lower search costs for buyers
• Lower 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
• Limitations
• Channel conflicts with distribution systems
• High cost when traditional EDI used
• Large number of business partners is needed to
  justify system

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Selling Via Auctions

• Using auctions on the sell-side
• Revenue generation
• Increased page views
• Stickinesscharacteristic of customer loyalty to
  a Web site, demonstrated by the number and length
  of visits to a site
• Member acquisition and retentionbidding
  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
  dont benefit from using intermediaries
• E-marketplace already in use, cost of adding
  auction not too high
• Intermediary-oriented e-marketplacean
  e-marketplace in which intermediaries operate

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Selling Via Auctions (cont.)

• Using intermediaries when
• No resources required
• Own and control auction information
• Fast time to market
• Searching and reporting
• Search and report all auction activities
• Standard reports available
• Additional analysis of complex information

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Selling Via Auctions (cont.)

• Billing and collection
• Automatic calculation of shipping weights and
  charges
• Paymentencrypted credit card data
• Billing informationeasily downloaded into
  existing systems
• Successful if
• Sufficient number of loyal customers
• Products well known
• Price not major purchasing criteria

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CISCO Connection Online (CCO)

• Benefitssaves the company 363 million per year
  in technical support, human resources, software
  distribution, marketing material
• Customer serviceCisco Connection online
• Online orderingInternet Product Center builds
  virtually all products to order
• Order statuscustomer tools for finding answers
  to order status inquiries

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Cisco Connection Online (CCO) (cont.)

• Benefits to Cisco
• Reduced operating costs for order taking
• Enhanced technical support and customer service
• Reduced technical support staff cost
• Reduced software distribution costs
• Lead times reduced fro 4-10 days to 2-3 days
• Benefits to customers
• Quick order configuration
• Immediate cost determination
• Collaboration with Cisco staff

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Buy Side MarketplacesOne-from-Many

• Procurement methods
• Buy from manufacturers, wholesalers, or retailers
  at their storefronts, from catalogs,and by
  negotiation
• Buy from the catalog of an intermediary
• Buy from an internal-buyers catalog
• Conduct a bidding or tendering system
• Buy at private or public auction sites
• Join a group-purchasing system

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Buy Side MarketplacesOne-from-Many (cont.)

• Procurement managementthe coordination of all
  the activities relating to purchasing goods and
  services needed to accomplish the mission of an
  organization
• Inefficiencies in procurement management
• Purchasing personnel spend time and effort on
  procurement activities
• Qualifying suppliers
• Negotiating prices and terms
• Building rapport with strategic suppliers
• Carrying out supplier evaluation and
  certification

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Buy Side MarketplacesOne-from-Many (cont.)

• Buyers are sometimes too busy with the details of
  the smaller items
• Organizations address this imbalance by
  implementing new purchasing models
• Potential inefficiencies
• Delays
• Paying too much for rush orders
• Maverick buyingunplanned purchases of items
  needed quickly, often from non-approved vendors
  or at higher prices

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Traditional Procurement Process
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Buy Side MarketplacesOne-from-Many (cont.)

• Goals of e-procurement
• Increase purchasing agent productivity
• Lower purchasing prices of items
• Improve information flow and management
• Minimize maverick (unplanned) buying
• Improve payment process
• Streamline purchasing process to make it simple
  and fast

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Buy Side MarketplacesOne-from-Many (cont.)

• Goals of e-procurement (cont.)
• Reduce administrative processing cost per order
• Find new suppliers and vendors to provide
  faster/cheaper goods and services
• Integrate procurement process with budgetary
  control in an efficient and effective way
• Minimize human errors in buying or shipping
  process

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Buy Side MarketplacesOne-from-Many (cont.)

• Implementing e-procurement
• Fit e-procurement into company EC strategy
• Review and change procurement process itself
• Provide interfaces between e-procurement with
  integrated EIS
• Coordinate buyers information system with the
  sellers

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Buy Side E-MarketplacesReverse Auctions

• Buy-side e-marketplacea 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 model
• Request for quote (RFQ)the invitation to a
  buy-side marketplace (reverse auction)

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Buy-Side B2B Market Architecture
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Conducting Reverse Auctions

• Reverse auctions administered from a companys
  Web site
• Bidding process lasts a day or more
• Bidders 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 RFQs
• Use 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
  contractors
• List is submitted to FreeMarkets (freemarkets.com)

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Freemarkets.com (cont.)

• FreeMarkets reduced the list to 50, based on
  considerations including
• Plant location
• Size of supplier
• Plant capacity
• Customer feedback
• Detailed 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 bidders
• Using 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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Aggregating Catalogs

• Aggregating suppliers catalogs an internal
  marketplace
• Maverick buying to save time leads to high prices
• Aggregating all approved suppliers catalogs in
  one place
• Reduced number of suppliers
• Buyers at multiple corporate locations
• Fewer and remote suppliers
• Larger quantity/lower costs

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Group Purchasing

• Group purchasingaggregation several buyers into
  volume purchases, so that better prices can be
  negotiated
• Internal aggregation
• Economy of scale
• Reduced transaction processing cost
• External aggregation
• Aggregating demand online
• Putting together orders from multiple buyers to
  make large volumes/lower costs

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Group Purchasing Process
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Electronic Bartering

• Bartering exchangean 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
  money
• Exchange a surplus for other need
• Benefits
• Faster than manually
• Easier 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 Design
• Planning Information sharing
• Information discovery

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Collaborative Commerce (cont.)

• Varieties of c-commerce
• Joint design efforts
• Forecasting
• Between and within organizations
• Aids communication and collaboration between
  headquarters and subsidiaries, franchisers and
  franchisees
• C-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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Barriers to C-Commerce

• C-commerce is moving ahead fairly slowly because
• Technical reasons involving integration,
  standards, and networks
• Security and privacy concerns over who has access
  control of information stored in a partners
  database
• Internal resistance to new models and approaches
• Lack of internal skills to conduct c-commerce

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Infrastructure for B2B

• Server to host database and applications
• Software for executing sell-side (catalogs)
• Software for conducting auctions and reverse
  auctions
• Software for e-procurement (buy-side)
• Software for CRM
• Security hardware and software
• Software for building a storefront
• Software for building exchanges
• Telecommunications 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 EDIEDI that runs on the Internet
  and so is widely accessible to most companies,
  including SMEs

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Extranet and EDI

• Extranetssecured networks (by VPN), usually
  Internet-based, that allow business partners to
  access portions of each others intranets
  extended intranets.

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Integration

• Integration with existing information systems
  issues
• Intranet-based work flow
• Database management systems (DMBS)
• Application packages
• ERP
• Back-end sell-side integration works for sellers
  but not buyers and vice versa

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Integration (cont.)

• Integration with business partners
• Easy integration with one company-centric side
• Not easy to integrate for many buyers or sellers
• Need 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 needed
• Web is based on the standard communication
  protocols useful only for displaying static
  visual Web pages
• TCP/IP
• HTTP
• 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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The Role of Software Agentsin B2B EC

• Agents role in the sell-side marketplace
• B2C comparison-shopping
• B2B agents collect information from sellers
  sites for buyers
• Agents role in the buy-side marketplace
• Assisting 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 field
• The major B2B models
• The characteristics of sell-side marketplaces
• Sell-side intermediaries
• The characteristics of buy-side marketplaces
• Forward and reverse auctions
• B2B aggregation and group purchasing
• Collaborative EC
• Characteristics of Internet-based EDI and the
  role of XML