Chapter 6 BusinesstoBusiness Electronic Commerce

1
Chapter 6Business-to-Business Electronic Commerce
2
Learning Objectives

• Distinguish between B2B and B2C
• Identify the relationship between B2B and supply
  chain management
• Classify 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

3
Learning Objectives (cont.)

• 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

4
Trading Process Network (TPN)Post in General
Electric

• General Electric (GE)

• Its purchasing was inefficient, involved too many
  administrative transactions

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.

• GE is conducting electronic bids, no paperwork

5
Trading Process Network (TPN)Post in General
Electric (cont.)

• Benefits of using TPN

• 60of 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.

6
Supply Chain

• Definition
• All activities associated with the flow and
  transformation of goods from raw materials to end
  users

7
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

8
Characteristics of B2B EC (cont.)

• Relationship with Electronic Marketing
• Supplier-oriented marketing
• Used to sell the companys 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

• Relationship with Procurement Management
• Purchasing companys point of view a medium of
  achieving the goals of procurement management
• Procurement managements point of view the
  buyer-oriented market can be effective
• Using a RFQ-bidding mechanism

9
Characteristics of B2B EC (cont.)

• 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 important
• Relationship 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

10
Models of B2B EC

• Supplier-Oriented Market Place
• Individual consumers and business buyers use the
  same supplier-provided market place (May pay
  different prices due to quantity discount)

11
Models of B2B EC (cont.)

• 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

12
Models of B2B EC (cont.)

• 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

13
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. suppliers information and pricing
  information
• Improving the payment process

14
Case Study of Supplier-Oriented Market
PlaceCISCO 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

15
Case Study of Customer-Oriented Market Place
GEs 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

16
Case Study of Customer-Oriented Market Place
GEs TPN Post (cont.)

• 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 Sellers
• Boost Sales
• Expand market reach
• Cut costs for sales and marketing activities
• Shorten the selling cycle
• Improve sales productivity
• Streamline the bidding process

17
Case Study of Intermediary-Oriented Market Place
Boeings PART

• Boeings 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

18
Case Study of Intermediary-Oriented Market Place
Boeings PART (cont.)

• 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

19
Case Study of Intermediary-Oriented Market Place
Boeings PART (cont.)

• Benefits to Boeings Customers
• Increased productivity
• spending less time searching for information
  frees up engineers and maintenance technicians to
  focus on more productive activities
• Reduced costs
• with 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 opportunity
• through 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?

20
Just-In-Time DeliveryFed 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

21
Just-In-Time DeliveryFed Express InterNetShip
(cont.)

• 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

22
Just-In-Time DeliveryFed 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 Costs
• Without the system, approximately half of the
  calls would have gone to FedExs toll-free number
  resulting in high telephone and labor expenses
• Better Customer Service
• Customers still have a choice for how they
  interact with the company, whether by e-mail,
  phone, fax or other means

23
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)

24
Business-to-Business Auctions (cont.)

• 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

25
EDI - The Infrastructure for B2B

• A network for transmitting standard transactions
• A paperless TPS environment
• Routine documents purchase order, billings,
  shipping manifests
• Documents translated into standard business
  language
• In use since the 1970s on private VANs. Save
  time, reduce errors in data entry, save money,
  consistent information flow
• Provide strategic advantages

26
EDI - The Infrastructure for B2B (cont.)

• Typical Flow of EDI Messages
• one order - seven messages!!

27
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

28
From Traditional to Internet-based EDI (cont.)

• 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

29
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.

30
From Traditional to Internet-based EDI (cont.)

• 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.

31
The Role of Agents in B2B EC
32
The Role of Agents in B2B EC (cont.)
An Architecture of Intelligent Agents
for Electronic Commerce UNIK-AGENT Approach
33
The Role of Agents in B2B EC (cont.)

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

34
The Role of Agents in B2B EC (cont.)

• Comparison Shopping with Buyers Own Electronic
  Bag

35
The Role of Agents in B2B EC (cont.)

• Just-in-Time Delivery

36
The Role of Agents in B2B EC (cont.)

• Buyer Oriented Directory

37
The Role of Agents in B2B EC (cont.)

• Formal Contract with Bidding Process

38
The Role of Agents in B2B EC (cont.)

• Organizational Purchasing Decision

39
The Role of Agents in B2B EC (cont.)

• Agent Based Commerce

40
The Role of Agents in B2B EC (cont.)

• Secure Large Amount Payment

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
41
Issues in B2B Advertisement and Marketing

• Finding and retaining business customers
• Making them buy
• Reaching organizational buyers (functional,
  corporate)
• Building relationship marketing in B2B
• Advertisement, mailing lists, strategies
• Mailing lists house, response, compiled
• The role of the CD-ROM
• Marketing databases and e-mail lists

42
Internet Marketing Strategies

• Generating and qualifying leads with the Internet
• Using Internet events to promote products and
  services
• Executing instant fulfillment on the Internet
• Generating orders through the Internet
• Enhancing customer relationships with the Internet

43
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-Oriente
  d Market Place to implement the plan from either
  or both aspects, because every company needs
  effective and efficient sales and purchases