B2B Concepts, Characteristics and Models

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CHAPTER 5
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B2B Concepts, Characteristics and Models

• Business-to-Business E-Commerce transactions
  between businesses conducted electronically over
  the Internet, extranets, intranets, or private
  networks
• Size of Market
• Est. 2005 10 trillion
• 10 of all Business to Business transactions
  (traditional nontraditional)
• Benefits of B2B
• Eliminates paper (?)
• Expedites cycle time
• Lowers search cost time for buyers
• Increase productivity of employees
• Reduces errors
• Increases production flexibility
• Facilitates mass customization

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B2B Characteristics

• Parties to the Transaction B2B commerce can be
  conducted directly between a buyer and a seller
  or it can be conducted via an online intermediary
• Online intermediary online third party that
  brokers a transaction between buyer and a seller
• Types of transactions
• Spot buying purchase of goods and services as
  they are needed, usually at prevailing market
  price
• Strategic sourcing purchases involving long-term
  contracts that are usually based on private
  negotiations between sellers and buyers
• Types of Materials
• Direct Materials materials used in the
  production of a product
• Indirect Materials materials used to support
  production
• Direction of trade
• Vertical Marketplaces markets that deal with one
  industry or industry segment
• Horizontal Marketplaces markets that concentrate
  on service or product that is used in all types
  of industries

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Transaction Types

• Basic B2B Transaction Types
• Sell-side one seller many buyers
• Buy-side one buyer from many sellers
• Exchanges many sellers to many buyers
• Collaborative Commerce communication and sharing
  of information, design and planning among
  business partners
• Company Centric Transactions
• Company-centric EC e-commerce that focuses on a
  single companys buying or selling needs
• Private e-marketplaces markets 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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Transaction Types Cont.

• Many-to-Many Exchanges 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
• Collaborative Commerce the process of sharing
  information among business partners.
• Designs, planning, communications (nonfinancial
  transactions but include financial information)

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Virtual Service Industries

• Major B2B Services
• Travel Services
• Real Estate
• Electronic Payments
• Online Stock Trading
• Online Financing
• Other

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Sell-Side Models

• One seller that sells to many business buyers,
  frequently over an extranet
• Advantages over B2C
• Larger quantity Larger orders
• Customized catalogs
• Special pricing
• Direct Sales from Catalogs (1type)
• Companies can use the Internet to sell directly
  from their online catalogs
• Configuration Customization
• Offer an opportunity for customization
• Benefits
• Lower order-processing
• Faster ordering cycle
• Lower search cost

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Actions on the Sell Side

• Benefits of forward auctions
• Revenue Generation a (new) sales channel
• Cost Savings reduces cost of selling auction
  items
• Increased Page Views
• Stickiness the characteristic of customer
  loyalty to a Web site, demonstrated by the number
  and length of visits to site
• Member Acquisition Retention
• Registered members future business contacts

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Selling Via Auctions

• Selling from Companys own site
• For large and well-known companies that conduct
  auctions frequently it makes sense to build an
  auction mechanism on the companys own site
• Using Intermediaries
• 3rd party hosting company
• Benefits
• Need no additional resources or cost (personnel)
• Faster time to auction
• Intermediary could be invisible
• Billing and collection are done by the
  intermediaries

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Sell-Side Cases

• Cisco Connection Online
• Products are made to order
• Customer Service
• 85 service inquires
• 95 software updates are delivered
• In 14 different languages
• Online Ordering
• 98 customer orders
• Order Status
• Customers have ability to track their orders
• Saves answering 150,000 inquiries
• Benefits
• Reduced operating costs for order taking
• Enhanced technical support and customer service
• Reduced technical support staff cost
• Reduced software distribution costs
• Faster service

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Sell-Side Cases

• Marshall Industries
• A large distributor of electronic components
• 1.7 billion in sales 1999
• 30,000 business customers worldwide
• Survival strategy
• Marshallnet
• Strategic European Internet
• Electronic Design Center
• PartnerNet
• NetSeminar Education Portal
• Boeings PART Marketplace
• Worlds largest airplane maker
• PART (1996) Part Analysis Requirement
  Tracking). Purpose
• Purpose a single point of online access for
  buyers, maintenance people venders to access
  data about airplane parts.
• Benefits
• Eliminated 600 call per day
• 1996 - Same of staff members
• Online manual up do 30,000 pages

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Buy-Side

• Procurement Management the coordination of all
  the actives relating to purchasing goods and
  services needed to accomplish the mission of an
  organization
• Buyers time is spent on non-value-added items
  such as
• Data entry
• Correcting errors in paperwork
• Expediting delivery
• Solving quality problems
• Qualifying suppliers
• Negotiating prices and terms
• Generating supplier evaluations
• Maverick Buying (inefficiency) unplanned
  purchases of items needed quickly, often from
  nonapproved vendors or at higher prices

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E-procurement

• Define the electronic acquisition of goods and
  services for an organizations.
• Goals
• Increase productivity
• Lower purchase prices
• Improve information
• Improve the payment process
• Streamline the purchasing process
• Reduce administrative processing costs
• Locating new suppliers
• Integration with a Budget system
• Minimize human errors

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Reverse Auctions

• Buy-side e-marketplace a 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
• Conducting Reverse Auctions
• May be administered from companys Web site or a
  third-party intermediary may run the electronic
  bidding

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General Electric

• Trading Process Network TPN (1996)
• 2000 - 5 billion of goods and supplies
• 500-700 million - Companys est. savings from
  TPN
• GXS Express Marketplace a new revenue source
• Additional benefits
• GE has realized a number of benefits resulting
  from the implementation of TPN (see list on page
  227)

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Aggregating Catalogs, Group Purchasing and
Bartering

• Aggregating Suppliers Catalogs
• one solution to the procurement problem in large
  organizations is to aggregate (combine) in one
  place, at the corporate headquarters, the
  catalogs of all approves suppliers
• Increase quantities bought lowers the per unit
  price.
• Fewer authorized suppliers to maintain
• Group Purchasing
• the aggregation of orders from several buyers
  into volume purchases so that better prices can
  be negotiated
• Internal aggregations
• External aggregations
• Electronic Bartering
• Bartering exchange an intermediary that links
  parties in a barter a company submits its
  surplus to he exchange and receives points of
  credit, which can be used to buy the items that
  the company needs from other exchange participants

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Collaborative Commerce

• Collaborative commerce
• E-commerce consisting of activities between
  business partners in jointly planning, designing,
  developing, managing, and researching products
  and services
• Implies communication, information sharing, and
  collaborative planning
• Includes communication between
• headquarters and subsidiaries
• Franchisers and franchisees
• Benefits
• Extranet based Communications with its partners
  (Target Marshalls)
• Continuous Replenishment
• Reduction of Design Cycle Time
• Reduction of Product Development Time

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Barriers to Collaborative Commerce

• Moving ahead slowly
• Technical problems
• Integration Standards
• Networks
• Security / privacy concerns
• Assess controls to information
• Internal resistance to new models and approaches
• Lack of internal skills

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Infrastructure, Integration, and B2B Agents

• Infrastructure
• Electronic Data Interchange the electronic
  movement of specially formatted standard business
  document, such as bills, orders, and
  confirmations sent between business partners
• Value-Added Networks private, third-party-managed
  networks that add communications services and
  security to existing common carriers used to
  implement traditional EDI systems
• Internet-Based EDI runs on the Internet thus is
  widely accessible
• Extranets secured networks by Virtual private
  networks (VPN), usually Internet-based that
  allows business partners to access portions of
  each others intranets

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Infrastructure, Integration, and B2B Agents

• Integration
• With Existing Internal Infrastructure and
  Applications
• With Business Partners
• Role of XML in B2B Integration
• XML standard used to improve compatibility
  between the disparate systems of business
  partners by defining the meaning of data in
  business documents
• Role of Software Agents in B2B EC
• Agents role in sell-side marketplace
• Agents role in the buy-side marketplace