Chapter 6 CompanyCentric B2B

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Chapter 6Company-Centric B2B
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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 intermediaries 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
• Understand issues concerning the implementation
  of company-centric B2B
• Distinguish Internet-based EDI from traditional
  EDI

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General Motors B2B Initiatives

• EC initiativesbuild-to-order project to be in
  place by 2005 reducing inventory of finished cars
• Selling capital assets
• TradeXchange online auctions of items like used
  machines for manufacturing
• Significantly decreases time for sales
• Increases dollar amount of the sales

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General Motors B2B Initiatives

• EC initiatives at TradeXchange
• Buying commodity products--1 billion annual
  expenditure for direct and indirect products
• Traditional process
• Length of time measured in weeks
• Cost prohibited the number of bids
• Reverse auctionautomated process
• Internet open bidmany suppliers take part
• Job is awarded quickly
• Price to GM significantly lower

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Concepts and Characteristics of B2B EC

• B2B EC defined
• Transaction conducted electronically between
  business over the networks
• Internet
• Extranets
• Intranets
• Private networks (e.g., EDI)
• Automated trading improves the process

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Concepts and Characteristicsof B2B EC (cont.)

• Market size and content
• Expected to grow from 1.1 trillion in 2003 to
  10 trillion by 2005
• Percentage of Internet-based B2B from 2.1 in
  2000 to 10 in 2005
• Private and public e-marketplace
• Privateone-to-many mode
• Publicmany-to-many mode

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Concepts and Characteristicsof B2B EC (cont.)

• How is B2B conducted?
• Directly between buyer and seller
• Via an online intermediary
• Along the supply chain
• With or without intermediaries
• Types of transactions
• Spot buyingdetermined by dynamic supply and
  demand
• Strategic sourcinglong term contracts

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Figure 6-1B2B Supply Chain
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Concepts and Characteristicsof B2B EC (cont.)

• Supply chain relationships
• Interrelated subprocesses and roles
• Acquisition of materials
• Processing products and services
• Moving to distributors
• Purchase by consumer
• Traditional process managed through paper
  transactions
• B2B applications offer competitive advantages for
  supply chain management (SCM)

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Concepts and Characteristicsof B2B EC (cont.)

• Entities of B2B EC
• Selling companymarketing management perspective
• Buying companyprocurement management perspective
• Electronic intermediariesoptional third party
  directory service provider (scope of service may
  be extended to order fulfillment)
• Trading platformspricing and negotiation
  protocol (auctions, reverse auctions)

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Concepts and Characteristicsof B2B EC (cont.)

• Entities of B2B EC (cont.)
• Payment servicesmechanism for transferring money
  to sellers
• Logistics providerslogistics to complete
  transaction (packaging, storage, delivery)
• Network platformsInternet, VAN, intranet,
  extranet
• Protocols of communicationEDI or XML
• Back-end integrationconnecting to ERP systems,
  databases, functional applications

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Concepts and Characteristicsof B2B EC (cont.)
Information processed in B2B

• Product
• Customer
• Supplier
• Product process
• Transportation

• Inventory
• Supply chain
• Competitor
• Sales and marketing
• Supply chain process and performance

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Concepts and Characteristicsof B2B EC (cont.)

• Electronic intermediaries in B2B
• Consumers and business may share intermediaries
• Businesses may use different intermediaries with
  different suppliers
• Benefits of B2B models
• Eliminate paper-based systems
• Expedite cycle time
• Reduce errors
• Increase employee productivity
• Reduce costs
• Increase customer service and partnership
  management

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B2B Models

• Company-centric models
• Sell-side marketplace (one-to-many)
• Buy-side marketplace (many-to-one)
• Many-to-many marketplacesthe exchange
• Buyers and sellers meet to trade
• Trading communities
• Trading exchanges
• Exchanges

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B2B Models (cont.)

• Other B2B models and services
• For the purpose of selling
• For the purpose of buying
• Value chain integrators
• Value chain service providers
• Information brokers
• Vertical vs. horizontal marketplaces
• Verticalone industry or industry section
• Horizontalservice or product used in several
  types of industries

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B2B Models (cont.)

• Virtual service industries in B2B
• Travel and tourism services
• Real estate
• Electronic payments
• Online stock trading
• Online financing
• Other online services

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Figure 6-2Sell-Side Marketplace Architecture
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Sell-Side MarketplacesOne-to-Many

• Virtual sellersBigboxx.com.hk of Hong Kong
• B2B office supply retailer services
• Large corporate clients
• Medium corporate clients
• Small offices
• Goalsell products in various SE Asian countries
• Offers more than 10,000 items
• Uses more than 300 suppliers

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Sell-Side MarketplacesOne-to-Many (cont.)

• Virtual sellersBigboxx.com.hk of Hong Kong
  (cont.)
• Company portal attractive, easy to use
• Browse online catalogs
• Use search engines
• Payments
• Cash or check upon delivery
• Automatic payments
• Credit card
• Purchasing card

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Sell-Side MarketplacesOne-to-Many (cont.)

• Virtual sellersBigboxx.com.hk of Hong Kong
  (cont.)
• Delivery
• Owns trucks and warehouses
• Delivery scheduled online
• Same day (within an hour)
• Specifically scheduled time
• Ordering system integrated with SAP-based
  back-office system

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Sell-Side MarketplacesOne-to-Many (cont.)

• Virtual sellersBigboxx.com.hk of Hong Kong
  (cont.)
• Value-added services
• Track status of order
• Check stock availability
• Promotions
• Customized prices
• Group accounts and central approvalfor
  businesses with multiple branches
• Standing orders automatically activated
• Large number of reports and data available

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Sell-Side MarketplacesOne-to-Many (cont.)

• Customer service
• General Electric
• 20 million calls/year about appliances
• Reduced cost of each call from 5 to 0.20
• Milacron, Inc.
• Site contains 55,000 products
• Easy to use
• Securely handles selection, purchase, application
• Technical serviceexpanded to provide a higher
  level of service than previously available at the
  site

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Sell-Side MarketplacesOne-to-Many (cont.)

• Direct sales from catalogs
• Configuration and customization
• Efficient customization for direct sales
• Business customers
• Customize products
• Receive price quote
• Submit order
• Successful cases

• Dell
• Intel

• IBM
• Cisco

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Sell-Side MarketplacesOne-to-Many (cont.)

• Direct sales from catalogs
• Benefits
• Reduces costs (to buyers and sellers) and errors
  during the process
• Speeds up order cycle
• Ability to customize products
• Offer different prices to different customers

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Sell-Side MarketplacesOne-to-Many (cont.)

• Direct sales from catalogs (cont.)
• 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 Side Auctions and Other Models

• Forward auctionsquick disposal of items
• Revenue generation
• Increased page views
• Member acquisition and retentionbidding
  transactions result in additional registered
  members
• 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

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Selling SideAuctions and Other Models (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 SideAuctions and Other Models (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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Sell-Side CaseCISCO Connection Online (CCO)

• Benefitssaves the company 363 million per year
  in
• Technical support
• Human resources
• Software distribution
• Marketing material

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Cisco Connection Online (CCO) (cont.)

• 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

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Cisco Connection Online (CCO) (cont.)

• Benefits to customers
• Quick order configuration
• Immediate cost determination
• Collaboration with Cisco staff

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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 services
• MarshallNet
• Marshall on the Internet (portal)
• Strategic European Internet
• Electronic Design Center
• PartnerNet
• NetSeminar
• Education and News Portal

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Sell-Side Intermediaries (cont.)

• Marshall Industriesa subsidiary or AvnetMarshall
  (cont.)
• Survival strategy
• Continuous improvement programs and innovations
• Team-based organization, flat hierarchy,
  decentralized decision making
• Profit sharing compensation for salespeople

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Sell-Side Intermediaries (cont.)

• Marshall Industriesa subsidiary of AvnetMarshall
  (cont.)
• Survival strategy
• CRM highly promoted
• Web-based services create value between suppliers
  and customers
• EC initiatives supported by
• Changing internal organization
• Changing internal procedures

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Sell-Side Intermediaries (cont.)

• Boeings PART
• 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 for online parts and maintenance
  information and ordering capability

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Sell-Side Intermediaries (cont.)

• Boeings PART
• Spare 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 Internet
• Encourages customers to order parts
  electronicallycheap, easy, fast
• 50 of customers using Internet within first year

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Sell-Side Intermediaries (cont.)

• Boeings PART
• Benefits of PART online
• Improved customer service
• Significant operating savings
• New sales opportunities
• Customer service online reduced
• Phone calls (purchasing, order status etc.)
• Data entry

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Sell-Side Intermediaries (cont.)

• Boeings PART
• Portable access to technical drawings/support
• Boeing On Line Data (BOLD) provides availability
  to
• Engineering drawings
• Manuals
• Catalogs
• Other technical information
• Portable Maintenance Aid (PMA)solves maintenance
  problems

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Sell-Side Intermediaries (cont.)

• Boeings PART
• Benefits to Boeings customers
• Increased productivityless time searching for
  information
• Reduced costsdelays at gate reduced because all
  information is available
• Increased revenuesfaster service provides time
  savings

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Buy Side One-from-Many,E-Procurement

• Purchasing agents (buyers)
• Direct purchasing
• Use of material is scheduled
• Not a shelf item
• Indirect purchasing
• MROs
• Nonproduction materials
• Inefficiencies in procurement management of
  indirect materials

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Figure 6-3A Traditional Purchasing Process Flow
Source ariba.com, February 2001.
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Buy Side One-from-Many,E-Procurement (cont.)

• Innovative procurement management
• Innovative purchasing as strategic approach to
  increase profit margins
• Web facilitation includes
• Electronic tendering
• Volume purchasing
• Aggregating supplier catalogs at buyers site
• Group purchasing
• Others

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Buy Side One-from-Many,E-Procurement (cont.)

• Goals of procurement reengineering
• 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
• Fast

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Buy Side One-from-Many,E-Procurement (cont.)

• Goals of procurement reengineering (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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Figure 6-4Buy-Side B2BMarketplace Architecture
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Buy Side One-from-Many,E-Procurement (cont.)

• Direct vs. indirect sourcing
• Tools to automate purchasing goods
• Direct or mission critical
• 80 of manufacturers expenditure
• Long-term relationship with vendor of known
  quality goods
• Tight integration with suppliers along supply
  chain
• Indirectuse of public exchanges for indirect
  sourcing

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Buy Side Reverse Auctions

• Pre-Internet Reverse auction process
• Prepare description of product to be produced
• Announce project via ads, mail, telephone
• Send detailed information to interested vendors
• Vendors prepare proposals
• Bidders submit document proposals
• Proposals evaluated
• Problems
• Laws
• Expensive
• Errors

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Buy Side Reverse Auctions (cont.)

• Web-based reverse auction process
• Buyers prepare bidding project information
• Buyers post project on portal
• Identify potential suppliers
• Invite suppliers to bid
• Suppliers download project information
• Suppliers submit electronic bid
• Reverse auction in real-time, or it can take a
  few days
• Buyers evaluate and award contract

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Buy Side Reverse Auctions (cont.)

• Web-based reverse auction process
• Benefits
• Electronic process is faster
• Administratively much less expensive
• Enables location of cheapest possible products

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Procurement Revolution at GE

• TPN at GE Lighting Division
• Purchasing was inefficienttoo many
  administrative transactions
• Process for each requisition took 7 days
• Complex and time-consuming
• Could only send out bids for 2 or 3 suppliers
• Trading Process Network (TPN)electronic bids
• Entire process takes 7 days (for suppliers to
  bid)
• 2 hours to send information to suppliers
• Evaluate and award bids same day

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Procurement Revolution at GE (cont.)

• Benefits to GE
• Involvement in procurement process
• Labor declined 30
• Material costs declined 5-20--wider base of
  suppliers online
• Redeployment
• 60 of the staff
• Sourcing department concentrates on strategic
  activities instead of paperwork, etc.

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Procurement Revolution at GE (cont.)

• Benefits to GE
• Time 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
  modifications
• GE procurement departments share information
  about their best suppliers across the world

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Procurement Revolution at GE (cont.)

• Benefits to buyers
• Worldwide supplier partnerships
• Current business partners
• Strengthen relationships
• Streamline sourcing process
• Rapid distribution of information
• Transmit electronic drawings to multiple
  suppliers
• Decrease sourcing cycle time
• Quick receipt and comparison of pricing bids

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Procurement Revolution at GE (cont.)

• Benefits to suppliers
• Increased sales volume
• Expanded market reach, finding new buyers
• Lowered administration costs for sales and
  marketing activities
• Shortened requisition cycle time
• Improved sales staff productivity
• Streamlined bidding process

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Procurement Revolution at GE (cont.)

• Deployment strategies
• Start EC in one division and slowly go to all
  divisions
• Use the site as public bidding marketplace to
  generate commission income to GE

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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 purchasingorders from several buyers are
  aggregated
• 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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Electronic Bartering

• Electronic bartering
• Exchange of goods or services without the use of
  money
• Exchange a surplus for other need
• Bartering exchange
• Submit surplus to exchange for points
• Points used to buy what company needs
• Benefits
• Faster than manually
• Easier to match

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Collaborative Commerce (C-Commerce)

• Web-based systems used between and among
  suppliers for
• Communication
• Design
• Planning
• Information sharing
• Information discovery

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Collaborative Commerce(C-Commerce) (cont.)

• Webcore construction goes online with its partners

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Figure 6-6Suppliers Extranet Hudson Dayton Case
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Collaborative Commerce(C-Commerce) (cont.)

• Reduce design cycle time by connecting suppliers
  Adaptec, Inc.
• Microchip manufacturer supplying electronic
  equipment makers
• Outsources manufacturing tasks
• Delivery times exceeded their competitors
• Solution to the problem
• Extranet and enterprise-level supply chain
  integrated software
• Significantly reduced order-to-product delivery
  time

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Collaborative Commerce(C-Commerce) (cont.)

• 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

• Suppliers
• Distributors
• Overseas

• Factories
• Customers

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Collaborative Commerce(C-Commerce) (cont.)

• Other examples of c-commerce
• Tricon Restaurant Internationalglobal brand
  marketing management
• RE/MAXreal estate franchiser improved
  communication and collaboration between
  independent owners
• Marriott Internationallinks corporations,
  franchising partners, suppliers, customers
• Nygard of Canadainterorganizational collaboration

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B2B Infrastructure

• 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)

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B2B Infrastructure (cont.)

• Software for CRM
• Security hardware and software
• Software for building a storefront
• Telecommunications networks and protocols

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Extranet and EDI

• Secure interorganizational networks
• Traditional EDI limits accessibility of small
  companies
• Internet-based EDI offers wide accessibility to
  companies around the world

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Integration

• ERP software
• Customer, supplier, and other databases
• Legacy systems
• Catalog (product) information
• Inventory systems
• Sales statistics
• Decision support systems (DSS) and SCM
  applications

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Integration (cont.)

• Integration with existing information systems
• Issues in integrating with back-end information
  systems
• 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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Figure 6-7 Intelligent Agent-Based Commerce
B2B Agents
Source J. K. Lee and W. Lee (1997).
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Implementation Issues

• Justification and prioritization
• Must conduct cost benefit analysis of proposed
  projects
• Include organizational impacts
• Possible channel conflicts
• Dealing with resistance to change due to
  processes reengineering
• Cost-benefit analysis related to
• Finding B2B opportunities
• Prioritizing potential initiatives

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Implementation Issues (cont.)

• Vendor selection
• Primary vendor uses its software and procedures,
  adds partners as needed
• Integrator mixes and matches existing products
  and vendors to create best of the breed
• Affiliate programs
• Referral program
• Useful for B2B intermediaries

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Implementation Issues (cont.)

• Implementing e-procurement
• Fit e-procurement into EC strategy
• Review and change procurement process itself
• If ERP or SCM is in placeintegrate
  e-procurement, If not in placeBPR before
  implementation
• Coordinate buyers information system with
  sellers

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Managerial Issues

• B2B marketingsell-side marketplaces require
  advertisement and incentives
• Which models to use and whenneed for
  implementation strategies and prioritization
• Purchase process reengineering (BPR)
• Establish buy-side marketplace on its server if
  volume is big enough to attract major vendors
• Join third-party intermediary-oriented
  marketplace if volume is small

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Managerial Issues (cont.)

• Integrationtrading in e-marketplaces is
  interrelated with logistics
• Particularly true in many-to-many exchanges
• Company-centric marketplaces must integrate
• Logistics
• Other support services

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Managerial Issues (cont.)

• Business ethics
• Accessing unauthorized areas in the tracing
  system should not be allowed
• Privacy of partners should be protected
  technically and legally
• Auctionsboth forward and reverse
• Benefits are substantial
• Implementation is relatively simple
• Considerable flexibility in implementation

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Managerial Issues (cont.)

• E-procurementcritical success factors
• Need to cut down number of routine tasks
• Reduce overall procurement cycle using
  appropriate information technologies
• Workflow
• Groupware
• ERP software
• B2B models