Business-to-Business Electronic Commerce

1. Business-to-Business Electronic Commerce

2. Transaction Process B2B Electronic Commerce “Supplier” “Buyer” B2B Market Business Business Content Community Commerce • Commerce between businesses that is conducted electronically or in collaboration among business communities over the internet. • Buzz words: B2B exchanges, internet exchanges, electronic markets, e-marketplaces, e-hubs or e-procurement systems.

3. The Basic Supply Chain Transportation & Logistics Transportation & Logistics Transportation & Logistics Raw Materials Manufacturing Wholesalers Retails Consumer B2B B2C • All activities associated with the flow and transformation of goods from raw materials to end users.

4. B2B vs. B2C E-Commerce Market Chains Raw Materials Manufacturing Wholesalers Retails Intermediaries Consumer B2C E-commerce Government Transportation Communications Banks B2B E-commerce Business B2B Business Business B2C Consumer Suppliers Buyers

5. Buyer Benefits Reduced procurement process costs Reduced inventory costs More choices and better pricing. Efficient logistics Lower cycle times Supplier Benefits Lower sales and marketing cost Reaching new customers: generating new revenue Reduce the process costs of order management Better customer support B2B EC Benefits Overall: Increased market efficiency Greater market intelligence

6. Schlumberger: The world largest oil service company <Internal Portion>: Intranet: ERP Commerce One’s buyer site procurement software Step 1: employee act as own purchasing agents by using a simple-to-use catalog. Step 2: system automatically issues a requisition Step 3: procurement department for approval purchase order <External Portion>: Internet MarketSite: Internet marketplace for B2B transaction Step 4: connect to hundred of suppliers by using a single-open system E- Procurement

7. Benefits for Schlumberger reduce training cost gain discounts from vendors reduce the transaction costs reduce the amount of time people spent ordering and comparing prices. The system is cheaper to operate then EDI. It reduce overall procurement cycle E- Procurement Benefits

8. Why this topic is important • The market is large and expanding • B2B is 80-90% of e-commerce • B2B e-commerce changes business processes (usually for the better!) • Automates of supply chains • It has changed the way we do business. • Great benefits for both buyer and supplier sides, as well as the overall economy.

9. Vertical (Industry) Markets industry-specific. Horizontal (Functional) Markets Functional in nature. Facilitate the purchase and sale of goods and service used by a plethora of industries. Mega-exchange Groups of exchanges consolidated across industries or across horizontal or vertical segment. Type of Electronic Markets Industry Focus

10. Type of Electronic Markets Industry Focus Mega-Exchange MRO Database Magt. Vertical Market Shipping Horizontal Market Steel Auto Food Mining

11. Global B2B • Motor Industry • GM, Ford & DaimlerChrysler join forces to form a $500 billion electronic marketplace with their suppliers. • Food Industry • 50 food and beverage markets, including Kraft Foods, Proctor & Gamble, Coca-Cola, Nestle and Unilever announced a single industry-wide e-marketplace for conducting a portion of their $200 billion purchases of goods and services. • Aidmatrix • World’s largest aid agents, e.g. CARE, Red Cross & i2Technology • Steel and Petroleum • A startup B2B steel exchange: eSteel • Many companies have employed B2B marketplace for years • Federal Express, Cisco, Dell and General Electric.

12. B2B in Australia • corProcure Exchange 14 companies e.g. AMP, Amcor, ANZ, Australia Post, BHP, Coles Myer, Coca-Cola Amatil, Westfarmers, Fosters, Qantas, Telestra, etc $8 billion in annual buying. • Cyberlynx Procurement Services 6 companies form different Industries e.g. Commonwealth Bank, Woolworth, AAPT, Lion Nathan • Telestra’s new e-marketplace Qantas, American Express, National Australia Bank, Citibank with SAP.com • BHP: corProcure.com & eSteel.com • Coles Myer: corProcure.com & Global Net-Xchange. • B2bBuyer.com.au a free-form buying exchange targed at small business

13. Aggregation Bring a large number of buyers and seller together One-stop shopping Fixed and pre-negotiated prices Focus on content: online catalogues Matching Matching buyers and seller Prices are determined at the moment of purchase: dynamic and real time Dynamic trading process: auction, exchange, agents 3 Market Functions • Facilitation • The extend service: logistic and financial payment service

14. Key Entities of B2B EC • Selling company: marketing management • Buying company: procurement management • Electronic intermediary: an optional third party services provider • Deliverer: shipping for JIT delivery • Network platform: internet, intranet, extranet • Protocols & Communication: EDI, agents • Back-end info systems: Intranet, ERP systems, accounting, DBMS, etc.

15. Buyer-oriented Marketplace Basic Models of B2B EC (1) (Onwership Structure) Supplier-oriented Marketplace Supplier 1 Buyer 1 Supplier Buyer Supplier 2 Buyer 2 Supplier 3 Buyer 3 Intermediary-oriented Marketplace Supplier 1 Buyer 1 Third Party Buyer 2 Supplier 2 Buyer 3 Supplier 3

16. Manufacturer-driven electronic stores. Same store as used by individual consumers and business corporations. (B2C, B2B) May involve auctions run by the supplier. Supplier-oriented Marketplace Supplier-oriented Marketplace Buyer 1 Supplier Buyer 2 Buyer 3 Examples • Cisco Connection Online: Networking equipment • Dell: PC and high-end servers. Supplier’s products catalog Customer’s order information

17. Buyer opens a market on its server. Invites potential suppliers to bid on the RFQ (Request for quotes) The number of such sites increase: software agent is needed. Buyer-oriented Marketplace Buyer-oriented Marketplace Supplier 1 Buyer Supplier 2 Supplier 3 Examples • GE Lightning's TPN (Trading Process Network) tpn.geis.com Buyer’s product catalog(RFQ) Suppliers’ bids information

18. 3rd party sets up marketplace: matches buyers & sellers. Similar to B2C mall: Bring buyers and suppliers(bidders) to one place The corporate info. systems need tight coupling with intermediary electronic mall. Intermediary-oriented Marketplace Intermediary-oriented Marketplace Examples • Boeing’s PART • Industry.net • procure.net • Manufacturing.net Supplier 1 Buyer 1 Third Party Buyer 2 Supplier 2 Buyer 3 Supplier 3 Customer’s order information shared products catalogs Supplier’s products information

19. Models of B2B EC (2) (Other Business Models) • Virtual Corporation (B Networked 2 Bs): It is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or services. Goals: excellence, utilization, opportunism • Networking (HQ 2 Subsidiaries): procurement management • Online Service to Business: • Travel services • Real estate • Electronic payments • E-autions

20. MRO Hubs Ariba MRO.com NetBuy.com Catalogue Hubs Chemdex.com SciQuest.com ElectricalWeb.com Yield Managers Employease.com iMark.com NTE Exchanges E-steel PaperExchange ChemConnect Kaplan & Sawhney’s B2B Matrix B2B e-hub can be classified into four categories Systematic Sourcing How businesses buy? Type of Transaction Spot Sourcing Operating Supplies Manufacturing Inputs What businesses buy Type of Product

21. Online Catalog Static pricing Pre-determined Exchange Dynamic pricing Bid-ask market, based on supply & demand Auction Dynamic pricing Competitive bidding Barter Not applicable exchange goods or services Agents Dynamic pricing Negotiated price B2B EC: Market Mechanism

22. B2B EC: Online Catalog • Create value by aggregating suppliers & buyers • It works best in industries characterized by fragmented buyers and sellers who transact frequently for relatively small ticket items Buyer Benefits • Reduce Procurement Process costs and inventory costs • Expand potential supplier base • Easy product comparison based on multiple dimensions (price, quality, service, available.) Seller Benefits • Lower cost of sales • New sales channel • Lower process costs • Improve customer satisfaction • Examples :Chemdex, MRO, SciQuest

23. Buyer Benefits venue to fill immediate purchase needs Seller Benefits venue to offload excess capacity at market prices B2B EC: Online Exchange • Create value by temporal matching of supply & demand. Provide a spot market for commodities • A real-time, bid-ask matching process, market wide price determination is required. Examples :Paper Exchange, eSteel, Altra, Enermetrix, Arbinet.

24. B2B EC: Online Auctions • Surplus inventory, used capital equipment, discontinued goods, perishable items, refurbished products are suitable for auction. • In traditional auctions: the competitive bidding process results in upward price movement. • The reverse auctions, a format in which sellers compete for a buyer’s offer to purchase, prices may move downward. Buyer Benefits • Lower prices through competitive seller bidding in reverse auction • Easier to find unique products & services • Broader selection Examples : FreeMarkets: (a reverse auction for manufactured input) TradeOut: (Auctions for asset procurement & excess inventory) PaperExchange: (auction for paper-related capital equipment.) iMark.com (sell-auction model for capital equipment). Seller Benefits • Increased inventory turn over • Sellers get more bidders for more competitive bidding & higher selling prices

25. B2B EC: Online Bartering • Creates value by matching 2 parties that possess reciprocal assets within an asset class or across asset classes. Benefits • Enable firms to barter excess supplies of components or products that would have otherwise been sold for low prices. Examples :FastParts Inc. and FairMarket Inc. operate thriving exchanges where computer electronics companies swap excess parts. .

26. B2B EC: Software Agents • Shopbots: shopping agents that automatically search the Internet to obtain information about prices and other attributes of goods and services. • Pricebots: retailers also use it to check each other’s prices. • The Internet is moving toward an open, friction-free marketplace in which software agents will manage the buying and selling of goods

27. Type of Communication Network • Three types of communication network used for electronic commerce (1) Intranet (2) Extranet (3) Internet B2B Electronic Commerce Topology Intranet Extranet Internet Relationship Internal External Extent Organizational Business Partnership Global Employee Information & Communication Distribution Channel Communication Stakeholder Relationship Focus

28. Provide employees access to B2B activities Provide access from B2B activities to the back-end applications. Support knowledge management functions/communities of practice Communication Networks: Intranets

29. Indirect Connection EDI (Electronic Data Interchange): proprietary Value Added Networks (VANs) Direct Connection EDI / WebEDI / Open EDI: Public Network Infrastructure Communication Networks: Extranets • Inter-organizational Information Systems (IOS) • Secure, private, web-based networks, providing suppliers, customers and other business partners access to the initiator’s corporate database, or facilitating collaborative tasks among a group of organizations. • Pre-selected business partners • Major concerns with security and trust

30. Electronic markets Third-party intermediaries that match buyers and sellers within: A specific industry (vertical) A specific business function (horizontal) in a public marketplace Communication Network: Internet-based Electronic Markets B2B EC Software • Designed to help companies build Web sites that host, catalog, marketplace and other commercial sales activities • Major software packages: • Netscape: SellXpert & ECXpert • OpenMarket Transact • IBM’s Websphere • CommerceOne • Ariba

31. Many Choices

32. Audience Who are the players in the marketplace? Offering What does the marketplace offer those players Market Mechanisms What form should the B2B market take? Price Mechanism How is price determined for items being bought and sold? Revenue Source How does the marketplace owner capture value form the marketplace? And from whom? Access What marketplace access restrictions are in place? Control Who has strategic and tactical control over the rules and regulations of the marketplace? Cost/Investment How much is the initial investment? What are the recurring costs? Strategic design factors for B2B There are several issues a firm must consider before implementing an e-marketplace

33. Domain Expertise Apply B2B model to specific industries and markets. First Mover Advantage Achieve critical mass of buyers, suppliers, partners & distributors. Partnership Greater marketing, distribution & logistics. Content Relevant, value-added information. Ease of use Superior GUI, searchability, configuration and transaction services. Management Mission-critical solutions. Architecture Open platform for easy participation and integration of all parties. Other factors Time, speed, security, etc. What it takes to win

34. Optimal Decisions • Decisions have to integrate with the overall corporate strategy(from resource-based view and positioning school) • Attract larger number of participants • Provide value and not merely price • Value added: delivery, quality, reputation, reliability, speed, information • Supplier-customer relationship: sharing and trust • May depend on industry, firm type, products, business process, knowledge and technology, etc.