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Chapter 7 E-Marketplaces and B2B Exchanges. Learning Objectives. Define e-marketplaces and exchanges List all types of e-marketplaces Describe B2B portals Describe third-party exchanges Explain dynamic pricing and describe its trading mechanisms. Learning Objectives (cont.).

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learning objectives
Learning Objectives
  • Define e-marketplaces and exchanges
  • List all types of e-marketplaces
  • Describe B2B portals
  • Describe third-party exchanges
  • Explain dynamic pricing and describe its trading mechanisms

Prentice Hall, 2002

learning objectives cont
Learning Objectives (cont.)
  • Distinguish between e-procurement and

e-selling consortia

  • Describe the various ownership and revenue models
  • Describe networks of exchanges and exchange management

Prentice Hall, 2002

learning objectives cont4
Learning Objectives (cont.)
  • Describe the critical success factors of exchanges
  • Discuss implementation and development issues of e-marketplaces and exchanges
  • Describe the extranet and its role in supporting marketplaces and exchanges

Prentice Hall, 2002

opening case chemconnect covisint
Opening Case:ChemConnect & Covisint
  • ChemConnect uses a B2C business model where customers look for:
    • Lowest price
    • Fast shipment
    • Good return policy
    • Helpful customer service

Prentice Hall, 2002

chemconnect covisint cont
ChemConnect & Covisint (cont.)
  • ChemConnect—world chemical exchange
    • Provides free membership in trading marketplaces and information portals
      • Public exchange floor for anonymous bids
      • Commodities floor for buying and exchanging
      • Corporate trading rooms—private online auctions
    • Up-to-the-minute market information
    • Large electronic catalog
    • Independent intermediary

Prentice Hall, 2002

chemconnect covisint cont7
ChemConnect & Covisint (cont.)
  • Covisint—e-market of automotive industry
    • B2B integrated buy-side marketplace
      • General Motors
      • Ford
      • DaimlerChrysler
    • Entire industry gains
      • Lower costs
      • Easier business practices
      • Increased efficiency

Prentice Hall, 2002

chemconnect covisint cont8
ChemConnect & Covisint (cont.)
  • Covisint (cont.)
    • “Co” stands for
      • Connectivity
      • Collaboration
      • Communication
    • “Vis” stands for visibility provided by the Internet
    • “Int” stands for integrated solutions

Prentice Hall, 2002

chemconnect covisint cont9
ChemConnect & Covisint (cont.)
  • Covisint (cont.)
    • Collaborative commerce
      • Facilitate product design
      • Enable procurement process
      • Provide broad marketplace of buyers and suppliers
    • Vertical consortia trading exchange
      • Few large buyers
      • Many sellers (suppliers to the industry)

Prentice Hall, 2002

b2b e marketplaces and exchanges cont
B2B E-Marketplacesand Exchanges (cont.)
  • Dynamic pricing
  • Ownership of exchanges
  • Gains and risks of B2B exchange participation
  • Governance
  • Organization of exchanges

Prentice Hall, 2002

information portals
Information Portals
  • Thomas register
  • Alibaba.com
    • The database
    • The portal’s features
    • Reverse auctions
    • Services
    • Languages
    • Revenue model
  • More on information portals

Prentice Hall, 2002

figure 7 6 buyer aggregation model

Requests

Responses - - - - - - -

Figure 7-6Buyer Aggregation Model

Prentice Hall, 2002

third party trading exchanges
Third-Party (Trading) Exchanges
  • Suitability of third-party exchanges
    • Fragmented markets
    • Buyer-concentrated markets
    • Seller-concentrated markets

Prentice Hall, 2002

consortium trading exchanges cte
Consortium Trading Exchanges (CTE)
  • CTE is a subset of third-party exchanges, the 4 types are:
    • Vertical, purchasing-oriented
    • Horizontal, purchasing-oriented
    • Vertical, selling-oriented
    • Horizontal, selling-oriented

Prentice Hall, 2002

consortium trading exchanges cont
Consortium Trading Exchanges (cont.)
  • E-Procurement Consortia can be:
    • Vertical purchasing-oriented
    • Horizontal purchasing-oriented
    • Vertical selling-oriented
  • Selling-oriented consortia
  • Legal challenges for B2B consortia
  • Signals that may prompt legal scrutiny

Prentice Hall, 2002

consortium trading exchanges cont19
Consortium Trading Exchanges (cont.)
  • Critical success factors of consortia
    • Size of industry
    • Ability to drive user adoption
    • Elasticity—measure of incremental spending by buyers as a result of savings generated
    • Standardization of commodity-like products
    • Management of intensive information flow
    • Smoothing inefficiencies in supply chain

Prentice Hall, 2002

dynamic trading auctions and matching
Auctions

Private trading rooms—members conduct auctions at the exchange

Auction services may be one of the activities

Exchange may be fully dedicated to auctions

Matching

Market makers conduct matching supply and demand (e.g., stocks)

More complex than auctions because they match:

Prices

Quantities

Times

Locations

Dynamic Trading:Auctions and Matching

Prentice Hall, 2002

building and integrating marketplaces and exchanges
Building and Integrating Marketplaces and Exchanges
  • Step 1—Think ahead
  • Step 2—Planning
  • Step 3—System analysis and design
  • Step 4—Building the exchange
  • Step 5—Testing, installation, and operation
  • Step 6—System evaluation and improvement

Prentice Hall, 2002

building and integrating marketplaces and exchanges cont
Building and Integrating Marketplaces and Exchanges (cont.)
  • Integration
    • Between 3rd-party exchange and back-office systems of participants
    • Across multiple, incompatible exchanges
  • External communications
    • Web/client access
    • Data exchange
    • Direct application integration
    • Share process

Prentice Hall, 2002

building and integrating marketplaces and exchanges cont23
Building and Integrating Marketplaces and Exchanges (cont.)
  • Process and information coordination—how to coordinate external communications with internal information systems

External process Internal process

Data transformation Exception handling

  • System and information management—involves management of:

Software Hardware

Information components

Prentice Hall, 2002

building and integrating marketplaces and exchanges cont24
Building and Integrating Marketplaces and Exchanges (cont.)
  • Shopping carts—allow customers to shop at any participating vendor
    • Buyer maintains order information on its own site in order to integrate it with its internal

e-procurement system

    • Sell-side cannot support this capability
    • B-cart approach: cart resides on buyer’s PC instead of seller’s site
    • Interoperable interface between heterogeneous e-marketplaces and e-procurement system

Prentice Hall, 2002

figure 7 7 the b cart
Figure 7-7The B-Cart

Source: Lim and Lee (2001). Used with permission of Joe K. Lee, Chairman, International Conference on Electronic Commerce.

Prentice Hall, 2002

managing exchanges
Managing Exchanges
  • Revenue models
    • Transaction fees
    • Fee for service
    • Membership fees
    • Advertisement fees
  • Networks of exchanges
  • Centralized management
  • Finding a CEO and independent management team

Prentice Hall, 2002

critical success factors
Critical Success Factors
  • Early liquidity
    • Liquidity refers to volume of business conducted
    • Business’s chance of survival is best when liquidity is achieved early
  • Right owners
    • Partner with companies that can bring liquidity to the exchange
    • Best owner may be intermediary that can push both buyers and sellers

Prentice Hall, 2002

critical success factors cont
Critical Success Factors (cont.)
  • Right governance
    • Good management and fair /effective operations and rules are critical
    • Governance provides:
      • The rules for the exchange
      • Minimized conflicts
      • Decision making support
    • Good management induces necessary liquidity

Prentice Hall, 2002

critical success factors cont29
Critical Success Factors (cont.)
  • Openness
    • Exchanges must be open to all from:
      • Organizational point of view
      • Technical point of view
    • Open standards require:
      • Commitment by all involved
      • Universal agreement on the standards
    • Using the wrong standards can hurt the exchange

Prentice Hall, 2002

critical success factors cont30
Critical Success Factors (cont.)
  • Full range of services
    • Participants are attracted by an exchange that helps cut costs
    • Exchanges team up with banks, logistic services and IT companies to help
  • Importance of domain expertise
    • Market makers need an in-depth understanding of:
      • The industry
      • Business processes inherent in the industry
      • Knowledge of industry structure
      • Government and policy stipulations

Prentice Hall, 2002

critical success factors cont31
Critical Success Factors (cont.)
  • Targeting inefficient industry processes
    • Contribute to increased costs and time delays
    • Vertical exchanges can add value
  • Targeting right industries
    • Large base of transactions
    • Many fragmented buyers and sellers
    • Difficulties bringing together buyers and sellers
    • High vendor and product search/comparison costs
    • Strong pressure to cut expenses

Prentice Hall, 2002

critical success factors cont32
Critical Success Factors (cont.)
  • Brand building is critical
    • Increase switching costs by adding features and functionality
    • Invest in:
      • Gaining brand awareness
      • Attracting businesses to exchange
      • Customer retention

Prentice Hall, 2002

critical success factors cont33
Critical Success Factors (cont.)
  • Exploiting economics of scope
    • Value-added services make exchange compelling
      • Industry news
      • Expert advice
      • Detailed product specification sheets
    • Adjacent services
      • Banks and financial information providers
      • Identification supported by sophisticated digital certificate architecture

Prentice Hall, 2002

critical success factors cont34
Garner diverse and multiple revenue streams

Software licensing

Advertising

Sponsorship

Critical mass of users will garner more value-added services

Auction services

Financial services

Business reporting

Data mining services

Critical Success Factors (cont.)

Choice of business/revenue models

Prentice Hall, 2002

critical success factors cont35
Critical Success Factors (cont.)
  • Blending content, community, and commerce
    • Content and community perspective—stimulate traffic
    • EC transaction perspective—creates higher level of customer “stickiness”
  • Managing channel conflict
    • Hostile phase as buyers interact directly with sellers (disintermediation of supply chain)
    • Short-term revenues impacted by backlash from existing fulfillment channels result in price erosion affecting medium-term profitability

Prentice Hall, 2002

b2b networks and extranet
B2B Networks and Extranet
  • The Internet
  • Intranets—intra-business delivery systems
  • Extranets

Prentice Hall, 2002

figure 7 9 an extranet
Figure 7-9An Extranet

Source: Szuprowicz (1998), p. 6. Used by permission.

Prentice Hall, 2002

implementation issues
Implementation Issues
  • Problems with exchanges
    • Problems with public exchanges
      • Transaction fees
      • Cost savings
      • Recruiting suppliers
      • Too many exchanges
      • Supply chain improvements

Prentice Hall, 2002

implementation issues cont
Implementation Issues (cont.)
  • Problems with private exchanges
    • Lack of trust
    • Liquidity is questionable
  • Software agents in B2B exchanges
  • Disintermediation
  • Evaluating exchanges

Prentice Hall, 2002

managerial issues
Managerial Issues
  • Plan most secure and economical choice for implementation
  • Review current network and find out if it can be replaced by intranets or extranets
  • Participate in which exchange?
  • Determine in which exchange to participate

Prentice Hall, 2002

managerial issues cont
Managerial Issues (cont.)
  • Joining exchange may require a BPR of internal supply chain
  • Channel conflicts may arise when a company joins an exchange
  • Risks of joining an exchange must be carefully considered

Prentice Hall, 2002