B2B EC

1
B2B EC and Exchanges

• September 2001
• Jae Kyu Lee
• Graduate School of Management
• Korea Advanced Institute of Science and
  Technology

2
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

3
Objectives of B2B EC

• Assist the inter-enterprise commerce and
  interactions
• Reduce transaction cost and enhance efficiency
• Reduce time to search
• Cut the purchase cost
• Reduce inventory and production cycle time
• Share knowledge between partners
• Streamline the supply chain
• Satisfy and help the buyers
• Reduce cycle time for new product development
• Reduce the cost of implementing B2B interactions
• Hardware and software
• Development and maintenance cost
• Integration with inside corporate information
  systems

4
B2B EC Architecture C1 Case
Global Trading Web
BuySite
Seller
xCBL
Market.net
xCBL
Seller
BuySite
xCBL
xCBL
xCBL
xCBL
BuySite
Seller
MarketSite
BuySite6.0 -Enterprise Edition -Portal
Edition -Content Management
Auction Service Purchasing Card
Fire Wall
5
Solutions for B2B EC

• EDI and Internet EDI
• Join E-Marketplaces
• Competitive Purchase and Reverse Auction
• Supply Chain Management Systems
• Collaborative Forecasting
• Business Process Re-engineering and ERP
• CRM System
• Collaborative Development
• Use Application Service Provider
• Enterprise Application Integration

6
Mapping Goals with Solutions

• Assist the inter-enterprise commerce interactions
• Reduce transaction cost and enhance efficiency
• Reduce time to search
• Cut the purchase cost
• Reduce inventory and production cycle time
• Share knowledge between partners
• Streamline the supply chain
• Satisfy and help the buyers
• Reduce cycle time for new product development
• Reduce the cost of implementing B2B interactions
• Hardware and software
• Development and maintenance cost
• Integration with inside corporate information
  systems

• EDI

e-marketplace
Competitive purchase auction
SCM
Collaborative Forecast, e-Hub
SCM, BRP, ERP
CRM
C-Commerce
ASP
ASP
ERP, EAI
7
Factors in B2B EC Planning E-Marketplace
Perspectives

• Ownership of e-Marketplace
• Independent, Consortia, Private
• Public, Private (or Proprietary)
• Who keeps the data? Centric View.
• Third party, Buyers, Sellers
• Role of e-Hub
• Exchange, SCM, ASP
• Commerce, Collaboration
• Number of Buyers and Sellers
• Small Buyers Buyer-Centric
• Small Sellers Seller-Centric
• Many-to-Many Neutral
• Direction of Integration
• Vertical, Horizontal (MRO)

8
Public vs. Private e-Marketplace

• Private e-Marketplace means
• Buyer owned
• Buyers keep data
• Small number of partners
• Vertical integration with partners
• Price negotiation and possibly reverse auction
• Direct materials
• With existing suppliers
• Thrust Inventory reduction
• Tight integration with internal information
  systems
• What else contingencies?

9
Dynamics in Three Types of Exchanges (InternetWee
k, March 13, 2001)

• Public Exchanges Independent e-MP Consortia
• Private Exchanges
• Independent Exchange
• Spot market e.g. Partminers FreetradeZone.com
• Not worked well
• Changing biz model to Supply Chain Enabler or
  software plays
• Be careful to partner with them

10
Dynamics in Three Types of Exchanges
(II) (InternetWeek, March 13, 2001)

• Industry Consortia
• None are likely to grow into huge spot markets or
  become a font of cost-saving reverse auctions
• Benefit Created industry standards
• Wait-and-see if the consortia supply chain ASP
  services offer enough value to win widespread use
• Private Exchange
• Not a new supply chain
• Attend to the companies needs
• Apply to the companies most crucial business
  problems
• Between 2 3 partners
• Started mostly in 2001

11
Factors in B2B EC Planning E-Marketplace
Perspectives (II)

• Pricing Scheme
• Posted price, Negotiation, Auction, Reverse
  Auction
• Disintermediation
• Skip the intermediary, Assist the intermediary
• Direction of Aggregation
• Forward Aggregation, Reverse Aggregation
• Standardization of Products
• Commodity, Custom-made
• E-Catalog, Configured Specification

12
Factors in B2B EC PlanningBuyers Perspective

• Products to buy
• Direct Goods, Indirect Goods
• Purchase Channels
• Online, Offline, OnOffline
• Purchase Partnership
• Partners, Spot (anonymous)
• Existing or New Suppliers
• Efficiency with existing suppliers,
• Discovering new suppliers
• Thrust
• Price down, Inventory reduction
• Integration Strategy
• Inside-out, Outside-in

13
Purchasing Items and Types

• Purchasing Items

Indirect Direct (Horizontal) (
Vertical)
MRO Hubs Ariba W.W. Grainger MRO.com BizBuyer.
com
Catalog Hubs Chemdex SciQuest.com PlasticsNet.c
om VerticalNet BuildDirect
SYSMATIC SPOT
Procurement Type
Yield Managers Employease Adauction.com Capac
ityWeb
Exchanges e-Steel PaperExchange.com Altra
Energy IMX Exchange
(Source S. Kaplan and M. Sawhney)
14
Direct vs. Indirect Online Purchases

• Percentage of Direct vs. Indirect Purchase
• (Source NAPM/Forrester 2001)
• Indirect Goods 70.9 (up from 61.3 in the
  previous Q)
• had purchased indirect goods online
• Direct Goods 45.7 had purchased online
• More Indirect Goods Purchased Online

15
Exchange with Existing vs. New Suppliers

• Existing suppliers with established trust
• 85 of online B2B transactions
• 95 of offline B2B transactions
• New Suppliers
• Assist finding vendors
• Small but will grow
• Focus only one market (Jupiter)

16
Number of Buyers and Sellers
Number of Buyers Small Large
Small Large Number of Sellers
Point-to-Point
Purchasing e-Hub (Reverse Aggregator)
Selling e-Hub (Forward Aggregator)
Neutral e-Hub (Catalog hub, Exchange)
17
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

18
B2B EC Architecture C1 Case
Global Trading Web
BuySite
Seller
xCBL
Market.net
xCBL
Seller
BuySite
xCBL
xCBL
xCBL
xCBL
BuySite
Seller
MarketSite
BuySite6.0 -Enterprise Edition -Portal
Edition -Content Management
Auction Service Purchasing Card
Fire Wall
19
Global Trading Web Vision?

• The world's largest business-to-business trading
  community
• Comprised of many interoperating portals
• Unprecedented economies of scale for buying
  organizations, suppliers, and service providers
  worldwide.
• Each MarketSite is independently owned and
  operated by a leading market makers in a region
  or industry.

20
Buyers Trading Community Environment
BuySite
Customers Corporate Buyer
MarketSite
Suppliers
Web Browser
Supply Order
BuySite
Web Browser
Commerce One Transaction Servers
Print
Web Browser
Web Server
Fax
Fax
User
Email
EDI Format
Customers Firewall
21
Buy Site
Selection/ Quotation/Approval/Order/Delivery/Payme
nt
Goods
Services
Travel
Expense
Workflow - Routing Approval
Business Rules Architecture
22
Partnership of Commerce One
23
Ariba Service Architecture
24
Ariba B2B Commerce Platform

• Ariba B2B Commerce Platform offers a single
  system for managing all buying, selling and
  marketplace commerce processes
• Ariba B2B Commerce Applications include a core
  set of master components B2B Procurement, B2B
  Marketplace, B2B Dynamic Trade and B2B
  Collaborative Commerce
• Ariba B2B Commerce Services include a broad set
  of network-based solutions that enable customers
  to accelerate their deployment while increasing
  the breadth and scope of their solution

? ? ?
25
Aribas Business Scope and Partners
26
Expansion of Solutions and Battlefields
Morgan Stanley (2000)
27
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

28
Evaluation on Industry Trading Exchanges(AMR,
April 18, 2001)

• Independent consortia are hitting resistance
  and indifference.
• 2001 is a make or break year
• Survey on 1400 people in 10 specific verticals
• Criteria of Evaluation
• Consistency of strategic vision
• Depth of industry expertise
• Ability to create liquidity
• Level of functionality

29
Evaluation on Industry Trading Exchanges (II)

• Key Findings
• Exchanges aimed to build liquidity by
  streamlining the current business process
• Companies engaged with various public exchanges
  are also building their own private trading
  exchange.
• Trading exchanges need to provide management as
  well as technology consulting
• Exchanges
• - Evolve
• - Change business models
• - Form partnership to extend into new market or
  address more business process.

30
Top Industry Trading Exchanges

• Aerospace and Defense Exostar
• By BAE Systems, Boeing, Lockheed Martin, and
  Raytheon
• Automotive and Heavy Equipment Covisint
• Ford, GM, and Daimler Chrysler
• Chemical and Plastics Chematch
• Independent exchange
• Consumer Products Transora
• 250 mil investment by 55 members
• High-Tech and Electronics Converge
• HP, Compaq, etc.
• Combination of online and offline
• Purchased NECX for offline business

31
From ANX to Covisint(Automotive Network Exchange)

• GM, Ford, Chrysler and 30 suppliers, Dealers,
  Experimental Extranet (1997) 300 supplier (1998)
• Eventually 30,000 participants expected
• Information to Exchanges EDI(Order, Delivery),
  E-Mail, Groupware, CAD, e-Payment, etc.
• Goal of Cost Down 1Billion/Year for Industry,
  71/car
• Standard Protocol ANX-Certificate (IPSec
  Protocol)
• Ameritech, Bell Canada, EDS, MCI
  get the certificate.
• Solution and Service Business ANX eBusiness
  anx.com

32
Automobile Industry and Covisint

• GM
• Joint Venture with CommerceOne
• Announced TradeXchange Private Exchange
  Policy.
• Goal of Cost Reduction 100/trx ? 10/trx
• Goal Purchase Cycle time 16 weeks ? few hours,
• 2 days
• Ford
• Joint venture with Oracle Announced AutoXchange
• Planned Public Exchange policy
• Merger TX and AX ? Covisint
• Do they still need private exchanges?

33
Top Industry Trading Exchanges (II)

• Metal e-Steel
• US Steel, Ford, and steel makers
• Commodity trading
• Offer private trading service too
• Oil Gas FuelQuest
• Changed to technology provider
• Paper Paper Exchange
• 20-fold volume increase
• 575 transaction increase for 2000
• Retail GlobalNeteXchange (GNX)
• Sears, Whos whos in retailing
• Support collaborative forecasting vs.
  RetailLinkWal-Mart
• Utilities Altra Energy Technology
• Profitable
• 1 Bil of transactions a month

34
Collaborative Forecasting and Replenishment
Wal-Mart
SupplierWarner-Lambert
Operational System
EDI
ERP
Data warehouse
Internet
Manufacturing Plan
RetailLink
Sales data about W-L Products
WWW
Review and Comments
Inventory Plan
Forecast
Planner
Planner
35
Best B2B Web Sites by Category(NetMarketing 200
www.netb2b.com/netmarketing200)

• 15 Industries
• Out of 700 B2B web sites
• Scored
• Industries and Winners
• Agriculture/Food Processing Monsanto Co
• Automotive Cole Hersee Co.
• Construction/ Construction Equipment Deere Co.
• Financial Services and Insurance Merrill Lynch
  Co. Inc
• Health Care/ Pharmaceutical Baxter Health Care
• Manufacturing - High-tech IBM Corp.

36
Best B2B Web Sites by Category (II)

• Industries and Winners (Conti)
• Manufacturing- Industrial Boeing
• Outsourcing Automatic Data Processing
• Petroleum, Chemicals and Mining Eastman Chemical
• Professional Services KPMG International
• Software RealNetworks Inc.
• Telecom Service ATT
• Transportation and Shipping Federal Express
• Utilities Enron
• Wholesale/Retail/Distributor OfficeMax

37
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

38
Why Private Exchanges?

• Public Exchanges
• Just 16 of professional buyers have joined the
  third party exchanges by early 2001.
• Only 22 plans to use one in the future 20 by
  2002
• 50 of procurement agents see so little
  advantages
• Reason Their existing suppliers are not there
  yet.
• More interested in automating existing trade
  patterns
• Private (or Proprietary) Exchanges
• Invitation Only
• Forge close relationship with key buyers, like
  partnership
• Deeper integration of e-biz systems and process
  with partners
• Company can control the kind of business to carry
  out
• Everything can be branded

39
An Architecture of Private Exchange
40
Coexistence of Public and Private Exchanges

• Many public marketplaces also offer private
  exchange service to key customers
• PrintNation.com for PIP Printing Inc.s 450
  franchises
• Daimler Chrysler AG, Toyata Motor Corp., and
  Volks Wagen agreed to build private exchange.
• Feature of Private Trade eXange similar to
  public exchange
• Catalog, auctions, supply chain tools
• Blurring boundary What is not too public?
• Coexistence Strategy
• Public Non-strategic MRO
• Private Buy, sell, collaborate the core
  business
• partner integration

41
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

42
Flaws of e-Marketplaces(InternetWeek, March 13,
2001)

• Inexperienced management teams
• Limited value added services such as payment and
  logistics
• Poor back-end integration with buyer/seller
  systems
• Fewer sellers
• Scared away by the fear of commoditization

43
Critical Success Factors of B2B
e-Marketplaces(McKinseyQ, Nov 3, 2000,
pp.174-183)

• Early liquidity
• The right owners
• The right governance
• Openness
• A full range of services

44
Buyers Considerations to Secure Successful
e-Marketplaces(McKinsey Q, Nov 3, 2001)

• Managing Change
• Finding the right partners
• Experience
• Integration
• Service
• Ownership
• Technology
• Suppliers
• Cost
• Buyers

45
Table of Contents

• Objective and Solutions of B2B EC
• Factors in B2B Planning
• Dynamics in Exchanges
• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Key Prospectives in B2B
• Exchange Strategies
• Why Private Exchanges again?
• Flaws of e-Marketplaces and CSFs

46
Anatomy of B2B Black Monday(InternetWeek, April
11, 2001)

• Poor performance report of key B2B Players
  sales, profit, stock price
• IT Spending Tightens ( of increasing e-Biz
  spending Survey on 300 companies)
• Jan 2001 77 ? March 2001 48
• May reduce budget on e-MP, extranet, CRM budgets
• Exchanges Floundering
• Public exchanges floundering Shift to private
  exchanges
• Ariba
• - Reduced revenue projection(90 Mil in 2Q,
  2001 50 of expectation)
• - Layoff 700
• - Call off merger with Agile Software
• (Collaboration with suppliers for product
  design)
• - Virtually write off public e-MP, and shift to
  sourcing and procurement

47
Anatomy of B2B Black Monday (II)

• Exchanges Foundering (conti.)
• CommeceOne Revenue 170 Mil Loss 20 Mil
• Stock price crashes Web Methods, Vertical Net,
  Ventro
• Users want solutions, not roadmaps
• B2B vendors cannot tell what they have to offer
• Experience the integration difficult
• Solution and architecture selection critical
• Long time to reap benefit of private exchange and
  procurement systems. But they will be promising
  after 12 months (BW, April 12, 2000)

48
Key Prospects in 2001 (AMP Research, Feb 13,
2001)

• A third of companies over 1 Bil will implement
  Private Trading eXchanges by 2005
• Consortia Trading eXchanges on shaky ground this
  year
• By 2002, 40 of ASP and 60 of broader ASP market
  will fail or be acquired.
• Enterprise Application Integration (EAI) top
  priority in 2001, to make it easier for customers
  to unify channels, process, and data.
• SCM market is expected to reach 7.8 Bil in 2001
  with Inventory Management, Order Fulfillment, and
  SC Planning.
• Retailers focus on B2B synchronization,
  collaboration, and enterprise integration and
  optimization.

49
Key Prospects in 2001(II)

• Enterprise Commerce Management (ECM) system
  emerging.
• Vertical business process collaboration
• External content integration with inside
• Product Lifecycle Management (PLM) grow rapidly
• Reduce time-to-market of new products
• PLM application license revenue grow more than
  50
• This means the Collaborative Commerce
• Out of 850 exchanges in July 2000, only 35(4)
  went out of business or merged
• More shake out expected
• 80 of exchange participants not used at all
  (InternetWeek, Feb 14, 2001)

50
An Integrated Architecture
Application Framework for e-business
Supply Chain Management
Customer Relationship Management
Enterprise Resource planning
Suppliers
Customers
Business Intelligence
Electronic Commerce

• Web Selling , e-Procurement , EC Hosting ,
• Internet Billing,

Employees
51
Expenditure Plans on B2B EC (InternetWeek,
April 2, 2001)

• Spending on B2B technology is slowing as the
  economy stagnates
• InternetWeek Survey 300 companies
• of more spending than last year
• 72-77 in Jan 2001
• 49 in April 2001
• 75 of increased spending on EC as a percentage
  of total IT spending
• AMR Survey 100 companies with at least 500 mil
  in sales
• ComputerWorld, April 16, 2001
• Just 23 plan to increase EC spending
• But 87 plan to keep or increase EC spending in
  areas to win and keep customers, streamline SC
  activities, and B2B e-MP.
• 94 plan to increase their investment on B2B
  exchange projects

52
Expenditure Plans for B2B EC (II)

• Aggressive Industries (Goldman Sachs Survey,
• 454 companies in 15 industries)
• Computers, semiconductors, autos, and consumer
  packaged goods
• Focus Supply chain automation e-MP
• Tight integration with suppliers and
  buyers
• Laggard Industries Managed care and
  pharmaceutical
• Simple Supply Chain more likely
• Fewer tiers of supply
• Relatively strong and direct contacts

53
Expenditure Plans for B2B EC (III)

• Toward proprietary e-MP rather than public to get
  proprietary data of plan to build private
  e-MP
• 60 of managed care
• 55 of financial companies
• But software vendors will struggle.
• Focus on its most profitable customers ? CRM
• 20 of customers 5 in financial industry
• Focus on near term economic benefit
• Slim inventory more efficient manufacturing
• Five Ps Profit, Profit, Profit, Profit, Profit
• Same Business Goals in Different Setting

54
Conclusive Summary

• Understanding the interactions between the
  factors and available solutions important to plan
  the B2B EC.
• Contingency study is the beginning of planning.
• B2B Prospects
• Bad to software vendors
• Marketplace users promising in the long run
• Need to understand the difficulty of enterprise
  integration
• Need to understand what make the B2B EC a
  success.
• Portfolio of Private Exchange with Public
  Exchange important
• Targeting to Existing Suppliers important
• Need to observe real world cases and sites
• Key for Success in e-Biz Close watch and Timely
  Reaction

55
EC and MIS

• EC for the Implementation of SIS
• Online Sales, Customization, eProcurement,
  Complement Traditional Stores (K-Mart Case)
• CRM and Collaborative Commerce
• EC for the Implementation of BPR
• Integration with ERP
• Competing Solutions and System Integrations

56
EC and DSS, DW, DM, CFAR

• Decision Support Systems(DSS)
• Data Warehouse Transaction Record History
• Data Mining Extract Usable Knowledge from the
  Data Warehouse
• Statistics, Neural Computing, and Inductive
  Learning
• Web Mining
• Toward the Database Marketing and
• Customer Relationship Management
• Evolve to Collaborative Forecasting and
  Replenishment (CFAR)
• One of Collaborative Commerce

57
Collaborative Forecasting and Replenishment(CFAR)
Wal-Mart
Warner-Lambert (Mfr)
(Retailer)
Operational System
EDI
ERP
Data warehouse
Internet
Manufacturing Plan
RetailLink
Sales data about W-L Products
WWW
Review and Comments
Inventory Plan
Forecast
Planner
Planner
58
Collect Account Receivable Fords Old Method
Procurement Department
Purchase Order
Delivery
Suppliers
Warehouse
Reception
Bill
Accounting Dept
Copy of PO
59
Collect Account ReceivableFords New Method
Warehouse

• Copy of Purchase Order, Reception, and Payment
  Request Eliminated
• Automatic Match of Documents
• Reduced 75 of Personnel for A/C Receivable

• Role of Intranet and Extranet

60
EC and ERP

• ERP(Enterprise Resource Planning)
• Initial Tools Focused on the Integrated Internal
  Information Management
• Extended ERP Extended to include B2B EC
  functions and integrate with ERP
• SAPs mySAP.com
• E-Marketplaces Integration with ERP
• How to Outsource and Integrate Systems

61
Expansion of Solutions and Battlefields
Morgan Stanley (2000)
62
An Integrated Architecture
Application Framework for e-business
Supply Chain Management
Customer Relationship Management
Enterprise Resource planning
Suppliers
Customers
Business Intelligence
Electronic Commerce

• Web Selling , e-Procurement , EC Hosting ,
• Internet Billing,

Employees
63
Kaiser Permanente

• Prepaid Health Care Treat and prevention
• Group service
• http//www.kaiserpermanente.org/newsroom/structure
  .html
• http//www.kaiserpermanente.org/newsroom/history.h
  tml