ELC 200

1. ELC 200 Day 12 Prentice Hall, 2003

2. Agenda • Questions from last Class? • Assignment 3Corrected • 4 A’s, 8 B’s and 2 C’s • I am not looking for generic textbooks answer but answers that are specific to your business. • 5 Days till Daytona Beach Bike Week • http://www.daytonachamber.com/bwhome.html • Today we will finish discussing Company-Centric B2B and Collaborative Commerce • Thursday we will be talking about how to write an eBiz Plan • The completed eBiz plan is worth 22% of your grade Prentice Hall, 2003

3. Buy Side E-Marketplaces: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 (reverse auction) Prentice Hall, 2003

4. Exhibit 5.6Buy-Side B2B Market Architecture Prentice Hall, 2003

5. Conducting Reverse Auctions • Reverse auctions administered from a company’s Web site • Bidding process lasts a day or more • Bidders may bid only once or view the lowest bid and rebid several times • Increasing number of reverse auction sites makes it impossible for suppliers to monitor all of them • Online directories list open RFQs • Use software search-and-match agents to reduce the human burden in the bidding process Prentice Hall, 2003

6. Bidding Through a Third-Party Auctioneer: Freemarkets.com • United Technologies Corp. needs suppliers to make $24 million worth of circuit boards • 2,500 suppliers are identified as possible contractors • List is submitted to FreeMarkets (freemarkets.com) • http://www.ariba.com/ Prentice Hall, 2003

7. Freemarkets.com (cont.) • FreeMarkets reduced the list to 50, based on considerations including: • Plant location • Size of supplier • Plant capacity • Customer feedback • Detailed evaluation of the candidates Prentice Hall, 2003

8. Freemarkets.com (cont.) • 3-hour auction conducted of online competitive bidding: • First bid was seen by all bidders • Using reverse auction approach, the bidders reduced their bids • Comprehensive analysis of several of the lowest bidders • Then recommended the winners and collected its commission fees • Results • Original specification of $24 million was reduced to $18 million Prentice Hall, 2003

9. Procurement Revolution at GE • TPN (now part of gxs.com) • Purchasing was inefficient—too many administrative transactions • Process for each requisition took 7 days to send to bidders • 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 (7 days before) • Evaluate and award bids same day Prentice Hall, 2003

10. Procurement Revolution at GE (cont.) • Benefits to GE • Labor declined 30% and material costs declined 5%-50%--wider base of suppliers online • Redeployment of 50% of the staff • Takes half the time to identify suppliers, prepare a request for bid, negotiate a price, and award the contract • Invoices automatically reconciled reflecting modifications Prentice Hall, 2003

11. 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 Prentice Hall, 2003

12. 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 Prentice Hall, 2003

13. 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 Prentice Hall, 2003

14. Buying from MasterCardInternational’s Internal Catalog • Online buying program at MasterCard: • Allows corporate buyers to select goods and services from company’s electronic catalog • Goal is to consolidate buying activities from multiple corporate sites, improve processing costs, reduce the supplier base • Procurement department defines: • Scope of products or projects to buy • Invites vendors to bid or negotiate prices Prentice Hall, 2003

15. MasterCard International (cont.) • Contract prices are stored in the internal electronic catalog • Final buyer at MasterCard compares available alternatives • Organizational purchasing decision coupled with an internal workflow management system • Internal electronic catalog is updated manually or by software agents • Payments are made with MasterCard’s corporate procurement card • By 2002, the system was being used by more than 2,500 buyers Prentice Hall, 2003

16. Group Purchasing • Group purchasing—aggregation several buyers into volume purchases, so that better prices can be negotiated • 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 Prentice Hall, 2003

17. Exhibit 5.7Group Purchasing Process Prentice Hall, 2003

18. Electronic Bartering • Bartering exchange—an intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants • Exchange of goods or services without the use of money • Exchange a surplus for other need • Benefits: • Faster than manually • Easier to match Prentice Hall, 2003

19. Collaborative Commerce (C-Commerce) • Collaborative commerce (c-commerce)—commerce consisting of activities between business partners in jointly planning, designing, developing, managing,and researching products and services • Web-based systems used between and among suppliers for: • Communication Design • Planning Information sharing • Information discovery Prentice Hall, 2003

20. Collaborative Commerce (cont.) • Varieties of c-commerce: • Joint design efforts • Forecasting • Between and within organizations • Aids communication and collaboration between headquarters and subsidiaries, franchisers and franchisees • C-commerce platform provides e-mail, message boards, chat rooms, online corporate data access around the globe, no matter what the time zone Prentice Hall, 2003

21. Webcor Construction Goes Online with Its Partners • Webcor suffered from too much paperwork and poor communication with its: • Architects • Designers • Building owners • Subcontractors • Webcor’s goal: to turn its computer-aided design (CAD) drawings, memos, and other information into shared digital information Prentice Hall, 2003

22. Webcor (cont.) • Webcor uses ASP that hosts its projects on a secured extranet • Major problem was getting everyone to accept software: • Complex • User training is necessary • Webcor was in a strong enough position to choose not to partner with anyone who would not use ProjectNet Prentice Hall, 2003

23. Webcor (cont.) • Webcor’s business partners can post send, or edit CAD drawings, digital photos, memos, status reports, project histories • Partners have instant access to new building drawings • Central meeting place where users can both download and transmit information to all parties, all with a PC Prentice Hall, 2003

24. Retailer–Supplier Collaboration: Target Corporation • Target Corporation is a large retail conglomerate: • Conducts EC activities with about 20,000 trading partners • 1998—established an extranet-based system for those partners that were not connected to its VAN-based EDI. Prentice Hall, 2003

25. Target Corporation (cont.) • The extranet enabled the company to: • Reach many more partners, • Use many applications not available on the traditional EDI • Streamline its communications and collaboration with suppliers • Business customers to create personalized Web pages Prentice Hall, 2003

26. Continuous Replenishment: Warner-Lambert • Warner-Lambert (WL) served as a pilot site for a program called Collaborative Planning, Forecasting, and Replenishment (CPFR) • Shared strategic plans, performance data, and market insight with Wal-Mart • Trading partners collaborate on making demand forecasts • WL increased its products’ shelf-fill rate from 87 percent to 98 percent • An empty shelf>>>lost present sales and future sales if the customer purchases a substitute product Prentice Hall, 2003

27. Warner-Lambert (cont.) • WL is involved in another collaborative retail industry project—Supply-Chain Operations Reference (SCOR): • Divides supply chain operations into parts • Gives a framework with which to evaluate the effectiveness of their processes along the same supply chains to: • Manufacturers • Suppliers • Distributors • Retailers Prentice Hall, 2003

28. Reduction of Design Cycle Time: Adaptec, Inc. • Microchip manufacturer supplying electronic equipment makers • Outsourced manufacturing tasks to Overseas manufactures • Delivery times exceeded their competitors • Solution to the problem • Extranet and enterprise-level supply chain integrated software • Significantly reduced order-to-product delivery time Prentice Hall, 2003

29. Reduction of Product Development Time: 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 • SuppliersFactories • Distributors Customers • Overseas Prentice Hall, 2003

30. Barriers to C-Commerce • C-commerce is moving ahead fairly slowly because: • Technical reasons involving integration, standards, and networks • Security and privacy concerns over who has access control of information stored in a partner’s database • Internal resistance to new models and approaches • Lack of internal skills to conduct c-commerce Prentice Hall, 2003

31. Interorganizational Collaboration at Nygard of Canada • Nygard has become a leader in adopting IT and e-commerce in the apparel industry • Didn’t want to move manufacturing off shore (cheaper) due to longer lead and cycle times • Company stays competitive by using EC to control costs of labor and manufacturing • Developed an ERP and supply chain management that controls all internal operations, purchasing, product development, accounting, production planning, sales • This enabled the company to develop tight integration with its trading partners Prentice Hall, 2003

32. Nygard of Canada (cont.) • The moment that a customer buys a pair of pants at a partner’s retail store: • Information moves from the POS terminal • Automatically generates a reorder at Nygard • SCM: • Matches customers’ orders with the right fabrics • Searches the market pool for the most efficient combinations of other material for use with those fabrics Prentice Hall, 2003

33. Nygard of Canada (cont.) • Sales trigger orders • Manufacturing automatically industries, and global manufacturers are willing to operate with razor-thin margins as fabrics, zippers, and buttons • The moment that raw material is used, an automatic reorder of the material is generated • Allows just-in-time production • Quick order delivery (sometimes same day) Prentice Hall, 2003

34. Nygard of Canada (cont.) • Web-based control system enables the company to: • Conduct detailed profitability studies • Decisions are evaluated by impacts on the bottom line • Decision support systems (DSS) models are used for this purpose Prentice Hall, 2003

35. Infrastructure for B2B • 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) • Software for CRM • Security hardware and software • Software for building a storefront • Software for building exchanges • Telecommunications networks and protocols Prentice Hall, 2003

36. Extranet and EDI • Value-added networks (VANs)—private, third-party-managed networks that add communications services and security to existing common carriers; used to implement traditional EDI systems • Internet-based EDI—EDI that runs on the Internet and so is widely accessible to most companies, including SMEs Prentice Hall, 2003

37. Extranet and EDI • Extranets—secured networks (by VPN), usually Internet-based, that allow business partners to access portions of each other’s intranets; “extended intranets.” Prentice Hall, 2003

38. Integration • Integration with existing information systems issues • 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 Prentice Hall, 2003

39. 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 Prentice Hall, 2003

40. The Role of XML in B2B Integration • Companies interact easily and effectively by connecting to their servers, applications, databases • Standard protocols and data-representation schemes are needed • FIXML • Web is based on the standard communication protocols useful only for displaying static visual Web pages: • TCP/IP • HTTP • HTML Prentice Hall, 2003

41. The Role of XML in B2B Integration (cont.) • XML (eXtensible Markup Language)—standard (and its variants) used to improve compatibility between the disparate systems of business partners by defining the meaning of data in business documents • Used to increase: • Interactivity • Accessibility with speech recognition systems Prentice Hall, 2003

42. How XML works Prentice Hall, 2003

43. XML Unifies Air Cargo Tracking System • B2B intermediary, TradeVan Information Services of Taiwan provides information services about the cargo flights of different airlines • Different information systems have different query results • XML facilitates data exchange between heterogeneous databases • Information can be presented on wireless application protocol (WAP)-based cell phones Prentice Hall, 2003

44. Air Cargo Tracking System (cont.) • System is expected to: • Reduce delays significantly • Benefit of all members of the supply chain • Returns a standardized yet personalized presentation for different airlines • Enables customs brokers to reduce the cycle time by preparing declarations of imports faster Prentice Hall, 2003

45. Air Cargo Tracking System (cont.) • Buyers and other supply chain partners can schedule production lines with precision and in advance • Quality of door-to-door delivery companies is improved through fast communication • Answers to queries can be derived much faster • Improves the supply chain by reducing: • Delivery lead times • Inventory levels Prentice Hall, 2003

46. The Role of Software Agentsin B2B EC • Agent’s role in the sell-side marketplace • B2C comparison-shopping • B2B agents collect information from sellers’ sites for buyers • Agent’s role in the buy-side marketplace • Assisting large number of buyers requesting quotes from multiple potential suppliers in buy-side Prentice Hall, 2003

47. Managerial Issues • Can we justify the cost? • Which vendor(s) should we select? • Which model(s) should we use? • Do we need B2B marketing? • Should we reengineer our procurement system? • What restructuring will be required for the shift to e-procurement? • What integration would be useful? • What are the ethical issues in B2B? Prentice Hall, 2003

48. Summary • The B2B field • The major B2B models • The characteristics of sell-side marketplaces • Sell-side intermediaries • The characteristics of buy-side marketplaces • Forward and reverse auctions • B2B aggregation and group purchasing • Collaborative EC • Characteristics of Internet-based EDI and the role of XML Prentice Hall, 2003