Business to Business Exchanges

1
Business to Business Exchanges

• Niti Chopra
• Nikki Douglas
• Mike Engdale
• Daniel Platschek
• April 10, 2003

2
What are Business to Business Exchanges?

• B2B Exchanges are online marketplaces for
  businesses to buy and sell goods and services to
  and from other businesses.
• PetroCosm was an online marketplace where oil and
  gas companies could buy and sell products.
• Covisint, an exchange in the automotive industry,
  aims to reduce parts procurement costs by
  purchasing from manufacturers online.
• http//b2b.ebizq.net/exchanges/kenjale_1.html,
  viewed February 24, 2003.
• Anonymous, Covisint Moves Ahead Manufacturing
  Engineering, March 2001, Vol. 126, 3, page 34.
• http//www.chevrontexaco.com/news/archive/texaco
  _press/2000/pr7_18b.asp, viewed April 4, 2003.

3
Types of Exchanges

• Horizontal exchanges
• Service a broad range of industries.
• For items that are of generic use.
• Must have large number of suppliers to be
  effective.

• Vertical exchanges
• Specialize in serving one industry.
• Provide better collaboration of resources,
  standardizations, procurement process
  efficiencies.

http//www.workz.com/cgi-bin/gt/tpl_page.html,temp
late1content1408nav11, viewed March 10,
2003.
4
How are products presented on an Exchange?

• Auctions
• Sellers offer goods and buyers bid to buy.
• Sellers get highest price.
• Reverse Auctions
• Buyers post an order for what they want to buy,
  sellers bid.
• Buyer pays lowest price.

• Electronic Catalogs
• Sellers determine the content of catalog and
  prices.
• Online Distribution
• Established buyers can buy online from their
  supplier.

Domaracki, Gregory S., Millot, Francois, The
Dynamics of B2B E-Commerce AFP Exchange, Jul/Aug
2001, Vol. 21 4, pp. 50-57.
5
Exchange Statistics

• Covisint formed by GM, DaimlerChrysler, and
  Ford
• Big 3 invested a total of 200 million to start
  Covisint.
• Approximately 11,000 suppliers have used
  Covisint.
• PetroCosm formed by Chevron
• Ended up almost 90 million in debt.
• Koch, Christopher, Covisints Last Chance Can
  an old guy come out of retirement and save one of
  the icons of the new economy?, CIO, December 1,
  2002, Vol. 16 Issue 5, pages 62-69.
• Bransten, Lisa and Herrick, Thaddeus,
  E-Business Starting Gate, The Wall Street
  Journal, October 15, 2001.

6
B2B E-Commerce Growth

• E-Marketer estimates that the US share will
  account for one half of the total. They estimate
  US share to be 721 billion in 2003 and 1.01
  trillion in 2004.

http//www.crmassist.com/news/dispnews.asp?I90400
t99, viewed March 23, 2003.
7
As Managers

• Exchanges could introduce you to new customers
  (supplier) or help reduce costs (buyer).
• Introduce your company to e-commerce by
  purchasing non-essential supplies online using
  an exchange.
• Company may be forced to engage in online
  business by a customer.

8
What Was PetroCosm?

• Global internet B2B marketplace for companies to
  buy and sell oil and gas products and services.
• Browser-based access to products and services
  including drilling, electrical, pipes, valves,
  and fittings and professional, engineering, and
  construction services.
• http//www.chevrontexaco.com Petrocosm
  announcement, March 23, 2000.

9
Founding Members

• Chevron Corp. and electronic-commerce-software
  developer Ariba Inc. along with Crosspoint
  Venture Partners and Requisite Technology Inc.
• Texaco Inc. joined the partnership 2 months
  later.
• http//www.chevrontexaco.com Petrocosm
  announcement, March 23, 2000.

10
Goals

• To create the first B2B marketplace owned by
  buyers and suppliers across the energy industry.
• Benefits such as aggregated purchasing, lower
  transaction costs and seamless access to global
  markets could drive 11 billion in oil and gas
  industry savings and efficiencies.
• http//www.chevrontexaco.com Petrocosm
  announcement, March 23, 2000.

11
Goals

• Buyers were projected to save between 5 and 30
  by reducing paper forms and other transaction
  costs.
• Sellers were promised the opportunity to expand
  their customer base, develop new markets and
  reduce costs and paper work.
• Chevron and Ariba To Form Web Market For Energy
  Industry, The Wall Street Journal, January 20,
  2000.
• http//www.chevrontexaco.com PetroCosm Launches
  Online Marketplace for Oil and Gas Industry,
  July 18, 2000.

12
Implementation

• Exchange went live in July of 2000.
• Chevron planned to target a substantial portion
  of its annual 10 billion in spending through
  PetroCosm.
• Former Halliburton VP, Norman C. Chambers,
  selected as Chief Executive Officer.
• http//www.chevrontexaco.com PetroCosm Launches
  Online Marketplace for Oil and Gas Industry,
  July 18, 2000.

13
PetroCosms Downfall

• November 2000 merger of Chevron and Texaco left
  only one major buyer in the exchange.
• Competitors were reluctant to do business on what
  was seen as ChevronTexacos internal supplier
  network.
• Competing exchange, Trade-Ranger, offered a much
  broader range of buyers including 14 major oil
  refining companies.
• Darbonne, Nissa Haines, Leslie, Chevron,
  Texaco to form worlds fourth-largest oil Oil
  Gas Investor, November 2000.
• Sliwa, Carol, Oil firms rush to set up supply
  nets Computerworld, January 24, 2000.
• Messmer, Ellen, Regulators OK petrochemical B2B
  exchange, Network World, August 14, 2000.

14
PetroCosms Downfall

• After only 1300 transactions in its first year,
  PetroCosm was 84 million in debt.
• ChevronTexaco refused to pump money into the
  exchange and even tried to buy back the company
  for pennies on the dollar.
• PetroCosm shareholders refused the offer and
  filed for Chapter 11 bankruptcy protection in
  June of 2001.
• Bransten, Lisa and Herrick, Thaddeus,
  E-Business Starting Gate, The Wall Street
  Journal, October 15, 2001.

15
PetroCosm Conclusion

• Exchange was focused on only a few major buyers.
• The e-commerce collapse dried up PetroCosms
  venture capital.
• ChevronTexaco refused continued support of a
  solution they believed they could develop
  in-house.
• Bransten, Lisa and Herrick, Thaddeus,
  E-Business Starting Gate, The Wall Street
  Journal, October 15, 2001.

16
Covisint Case Study

• Background
• Services
• Case Study Conclusion

17
What is Covisint

• Web Based Global Business to Business
  Exchange For The Automotive Industry
• Co represents Connectivity, Cooperation
  Collaboration.
• Vis sites Visibility on the Web.
• Int Integrity to conduct Business.

proquest.umi.com/autos new driving range
18
Covisints Background

• GM Ford launched their own exchange
• TradeXchange by GM AutoXchange by Ford
• Thrilled both GM Ford but suppliers were thrown
  into a panic
• So came the idea to build a common exchange

www.metalcenternews.com/ big three go b2b
19
Covisints Background

• Lauched Feb 2000, Live Oct 2000
• Public Exchange
• Founding Members

www.covisint.com
20
Covisints Background

• Industry Participants (Suppliers)
• Technology Partners

www.covisint.com
21
Covisints Background

• Technology Providers
• VW, BMW did not join
• Currently has 11,000 suppliers
• Based at Southfield, Michigan

Can Covisint Find Its Way? -- Low adoption rates
force auto exchange to radically alter mission
1 David Joachim and Chuck Moozakis
InternetWeek, Manhasset Sep 17, 2001, Iss. 878
pg. PG.1 www.covisint.com Automotive network
shifts into gear Patrick Waurzyniak
Manufacturing Engineering, Dearborn Jan 2001
Vol. 126, Iss. 1 pg. 62
22
Covisints Mission

• Stream line the heavily fragmented supply chain
  network.
• Bring down the procurement cost speed up the
  process.
• Eliminate unnecessary paperwork administrative
  bottlenecks.
• Allow faster communicaton within outside the
  organization.

www.marketvoices.com
23
Covisints Mission
24
Covisints Services

• Collaboration
• Procurement Solutions
• Supply Chain Management
• Quality Assurance

25
Collaboration

• Collaboration- Virtual Project Workspace
• It lets manufacturers suppliers use the web to
  design review how parts are manufactured.
• Benefits
• Decreases product development time
• Decreases Cost

www.covisint.com Can Covisint Find Its Way? --
Low adoption rates force auto exchange to
radically alter mission 1 David Joachim and
Chuck Moozakis, sep17,2001
26
Covisint Procurement

• Quote Manager - Get RFQ electronically.
• Benefits - Save costs, delays time.
• Catalogs - An electronic purchasing environment
  for indirect material.
• Benefits
• Average reduction of 73 in transaction costs.
• Paperless and automated service.
• Average saving of 74 in process time.

www.covisint.com
27
Procurement Solutions

• Asset Management - It lets carmakers liquidate
  excess shop floor equipment other assets.
• Benefits - Help users to identify, appraise,
  categorize, track sell assets.
• Auctions - Rapid, real time, web based
  negotiation
• Benefits
• Process reduction of 72
• Users reported savings of 5-30
• Both buyer seller save time

Can Covisint Find Its Way? -- Low adoption rates
force auto exchange to radically alter mission
1 David Joachim and Chuck Moozakis,
sep17,2001 www.covisint.com
28
Buyer Auction
29
Quality Assurance

• It offers advanced quality planner problem
  solver.
• Advanced Quality Planner - It is used by
  automakers to make sure that parts meet necessary
  specifications before they go into production.
• Goals- The process helps create more robust,
  problem-free designs and minimizes quality
  defects from reaching the customer.

www.covisint.com
30
Quality Assurance

• Problem Solver- It allows OEMs suppliers to
  solve the problem together.
• Goal- The goal of Problem Solver is to help
  permanently correct problems not eliminated by
  the AQP Process.

www.covisint.com
31
Supply Chain Management

• Fulfillment Service - It gives members real time
  information about parts, inventory, and
  anticipated demand pulled directly from
  suppliers legacy systems.
• Benefits
• Reduction in inventory of 30-70
• Reduction in premium freight costs of 50-90
• Reductions in admin costs of 40-80

Can Covisint Find Its Way? -- Low adoption rates
force auto exchange to radically alter mission
1 David Joachim and Chuck Moozakis www.covisint
.com
32
Business Model

• Standard pricing for all services.
• Collaboration - monthly subscription fee.
• Procurement - per event fee.
• Quality Assurance - monthly subscription fee.
• Supply Chain - a combination of transaction
  monthly subscription fees.

Can Covisint Find Its Way? -- Low adoption rates
force auto exchange to radically alter mission
1 David Joachim and Chuck Moozakis sep27,2001
33
Is it a Success?

• The founders account for 80 to 90 percent of
  revenue.
• It laid off one-third of its staff of 300.
• Revenue 60 million, well short of the projected
  100 million.
• Covisint will broker the sales of 50 billion but
  its a far cry from the estimated 240 billion.

www.detnews.com/ covisint struggles to survive
in emarketplace by doron levin,bloomberg
news,august 23, 2002 proquest.umi.com/ Covisints
last chance,christopher koch, dec1
2002 www.auto.com archives/ covisint hits rough
patch as business falling, jamie
butters,december9,2002
34
Case Study Conclusion

• Covisint is continuing to fall short of its
  lofty intentions, we think its going to
  disintegrate within the next 18 months.
• Scott Upham, Senior Director J D Power
  Associates (December 9, 2002)
• Industry experts say the only way to save
  Covisint is to find a new way to make money and
  fast.

www.auto.com/archives/ covisint hits rough patch
as business falling, by jamie butters jeff
bennett, dec 9,2002
35
Covisints Strengths

• The three founding members
• New CEO Harold Kutner
• Provides a single platform for suppliers

Online buy gains speed David Hannon Purchasing,
Boston Feb 7, 2002 Vol. 131, Iss. 2 pg. 22, 3
pgs
36
Covisints Weaknesses

• Suppliers have resisted using Covisint
• Relied on tier one suppliers to bring in lower
  tiers.
• Competition.
• Anti-trust investigation.

Online buy gains speed David Hannon Purchasing,
Boston Feb 7, 2002 Vol. 131, Iss. 2 pg. 22, 3
pgs Motorcity shakeup Christopher Koch Darwin,
Framington Jan 2002 Vol. 2, Iss. 1 pg. 46, 6
pgs VW Widens Private Exchange Chuck Moozakis
InternetWeek, Manhasset Dec 10, 2001, Iss. 888
pg. PG.1
37
B2B Best Practices

• What have we learned?
• Review lessons from Covisint, Petrocosm, and
  other B2Bs.
• Conclusion.

38
B2B Best Practices

• B2B initiative must have full support from top
  management.
• Because implementing e-business requires
  radical changes in business activities, it is
  critical for development teams to receive support
  from upper management.
• Phan, Dien D.
• Information Systems Management

39
B2B Best Practices

• B2B strategy (vision) must be fully integrated
  into the companys overall strategy.
• Exchanges are a new channel meant to enhance,
  not replace, existing ways of doing business. In
  their role of bringing customers and suppliers
  together, exchanges must not forget that this is
  just another way to bring customers and suppliers
  together.

40
B2B Best Practices

• e-business should complement rather than
  cannibalize traditional ways of competing.
  Companies that use e-business to make traditional
  business process better will do better that those
  that invent and implement new combinations of
  virtual and physical activities.
• Phan, Dien D.
• Information Systems Management

41
B2B Best Practices

• The technology factor
• In the 90s, the major barrier for companies to
  engage in B2B was the ease and speed
  (connectivity) at which companies could exchange
  information.
• Today, security and the exchange of confidential
  information (privacy) is considered B2Bs enemy
  number one.

42
B2B Best Practices

• The security issue - Covisint
• The majority of our parts are specialized. We
  would go online with parts that tell our
  competition what we will be doing 2-3 years from
  now.
• Hubert Bergmann, VWs Management Board

43
B2B Best Practices

• The security issue - PetroCosm
• Petrocosm, started by Chevron, also had its
  share of difficulty convincing other companies in
  the oil industry to join. Only Texaco, which
  later merged with Chevron, was willing to join
  the exchange.

44
B2B Best Practices

• Use the technology wisely.
• Some companies have used internet technology
  to shift the basis of competition away from
  quality, features, and service and toward price,
  making it harder for anyone in the industry to
  turn a profit.
• Phan, Dien D.
• Information Systems Management

45
B2B Best Practices

• Keep the technology current while keeping good
  cost control.
• To succeed companies will need to constantly
  search and implement innovative strategies that
  capitalize on both the power of the internet and
  the changes in both traditional and electronic
  markets.
• (Scarborough and Spatarella, 1998)

46
B2B Best Practices

• Keep the technology current while keeping good
  cost control.
• GM Dealer Advantage Using the flexibility of
  the technology to their advantage, Covisint is
  branching out into new directions. Through
  Covisint, GM will link dealers to online catalogs
  and order forms. Thats a new space for us, and
  it expands what we already provide online to
  manufacturers.
• Wes Arrington, VP Global Accounts for Covisint

47
B2B Best Practices

• Listen to the users (Buyers and Suppliers).
• Know what users want and what the market needs
  and values and what users will let you do for
  them.
• The tools and/or applications that Covisint
  offers today are a direct result of mainly the
  buyers input. Covisints new CEO promises to
  listen more to suppliers.
• Koch, Christopher, Covisints Last Chance Can
  an old guy come out of retirement and save one of
  the icons of the new economy?, CIO, December 1,
  2002, Vol. 16 Issue 5, pages 62-69.

48
B2B Best Practices

• Listen to the users.
• Delivering personalized web content. Web
  content must be accurate, current, and
  appropriate for each individual customer. Intel
  works closely with sales forces to ensure that
  customers are getting what they need and are
  coming back to the site.
• Phan, Dien D.
• Information Systems Management

49
B2B Best Practices

• B2B is not for everyone.
• The case of AgriPlace.com An exchange that
  tried to put the buyers and the farmers together
  leaving the grain brokers out.

50
B2B Best Practices

• Implement good e-business education and training.
• Covisint provides online training to reduce the
  number of support calls. Some customers require
  basic training on how to use the Web.

51
B2B Best Practices
52
B2B Best Practices

• The Matrix Covisints Differentiators

53
B2B Best Practices

• The Matrix Covisints Differentiators
• Created a single technical platform
  (standardized) so suppliers could easily and cost
  effectively join the exchange. Keep in mind some
  of these suppliers are resource-constrained as
  the profit margins are continually squeezed by
  the Buyers.

54
B2B Best Practices

• The Matrix Covisints Differentiators
• First to introduce Collaborative Product
  Development Design sharing between OEMs and
  suppliers on the web. Involves the supplier in
  the design phase of product development.

55
Conclusion

• Where do we go from here?
• The statistics paint a grim picture
• 1,500 Exchanges in July 2001
• Only 700 Exchanges in July 2002.
• Jorgensen, Barbara The Shakeout in B2B
  Exchanges
• Electronic Business, 2003.
• B2B is here to stay, however, it is still in its
  infancy stages and we have seen its growing
  pains.
• Are B2Bs ready to take the place of the
  purchasing department?

56
Any Questions?