Chapter 5 Business-to-Business Strategies: From Electronic Data Interchange to Electronic Commerce

1. Chapter 5Business-to-Business Strategies: From Electronic Data Interchange to Electronic Commerce

2. Purchasing, Logistics, and Support Activities Purchasing activities Include identifying vendors, evaluating vendors, selecting specific products, and placing orders Supply chain Part of an industry value chain that precedes a particular strategic business unit Procurement Includes all purchasing activities, plus the monitoring of all elements of purchase transactions Supply management Term used to describe procurement activities Sourcing Procurement activity devoted to identifying suppliers and determining their qualifications E-procurement or e-sourcing Use of Internet technologies in procurement and sourcing activities

3. Trends in Supply Chain Management • Some Supply Chain Management trends include: • Supply Chain Simplification • Electronic Data Interchange (EDI) • Collaborative commerce • Net Marketplaces and Private Industrial Networks

4. Supply Chain Simplification • The reduction of the size of a firm’s supply chain • Firms work closely with a strategic group of suppliers to reduce product costs and administrative costs • Long term contract purchases containing pre-specified product quality requirements and pre-specified timing goals • Shown to improve end product quality and ensure uninterrupted production Discuss what some simplification strategies would be for: Ford; Wal-Mart; Macy’s; Wegmans

5. Electronic Data Interchange • Developed to reduce cost, delays, and errors inherent in the manual exchanges of documents • differs from unstructured message because its messages are organized with distinct field for each important piece of information • EDI industry committees define the structure and information fields of electronic documents for that industry

6. EDI on the Internet Initial roadblocks to conducting EDI over the Internet included: Concerns about security The Internet’s inability to provide audit logs and third-party verification of message transmission and delivery Nonrepudiation Ability to establish that a particular transaction actually occurred Internet EDI or Web EDI EDI on the Internet Open architecture of the Internet allows trading partners unlimited opportunities for customizing information interchanges New tools such as XML help trading partners be even more flexible in exchanging detailed information

7. Value-Added Networks Direct connection EDI Requires each business in the network to operate its own on-site EDI translator computer EDI translator computers are connected directly to each other using modems and dial-up telephone lines or dedicated leased lines Indirect connection EDI To send an EDI transaction set to a trading partner: VAN customer connects to the VAN then forwards an EDI-formatted message to the VAN VAN logs the message and delivers it to the trading partner’s mailbox Trading partner then dials in to the VAN and retrieves its EDI-formatted messages Users need to support only the VAN’s one communications protocol. The VAN: Records message activity in an audit log; can provide translation between different transaction sets used by trading partners; can perform automatic compliance checking

9. Disadvantages of Using a VAN • Cost • Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee • Using VANs can become cumbersome and expensive for companies that want to do business with a number of trading partners, each using different VANs

10. Elements of a Collaborative Commerce System Using digital technologies to permit organizations to collaboratively design, develop, build, and manage products through their life cycles Exercise: Do a search on “collaborative commerce.” What is it? What are some firms involved?

11. Net Marketplaces & Private Networks

13. Main Types of Internet-based B2B Commerce Net Marketplaces (also referred to as exchanges or hubs) assemble thousand of sellers and buyers in a single digital marketplace on the Internet owned be either the buyer or the seller operate as independent intermediaries between the buyer and seller Private industrial networks bring together a small number of strategic business partners who collaborate to develop efficient supply chains and to satisfy customer demand for product by far the largest form of B2B commerce, presently comprising 93% of the total computer-assisted inter-firm trade

14. Two Main Type of Internet-based B2B Commerce

15. Types of Procurement Purchases of direct goods directly involved in the production process Purchases of indirect goods needed for production process but not directly involved in creating the end product. often called MRO goods -- maintenance, repair, and operations Contract purchases long-term agreements to buy a specified amount of a product. Pre-specified quality requirements & terms Spot purchases meet the immediate needs of a firm. most often made on a spot purchase basis in a large marketplace that includes many suppliers

16. Pure Types of Net Marketplaces

17. Net Marketplaces: E-distributors • Independently owned intermediaries • offer individual customers a single source from which to make spot purchases of indirect or MRO goods • operate in a horizontal market that serves many different industries with products from many different suppliers

18. Net Marketplaces: E-procurement • Independently owned intermediaries • connecting hundreds of online suppliers to business firms who pay a fee to join the market • Operate in a horizontal market – use long-term contractual purchasing agreements • Provide value chain management services • automation of a firm’s entire procurement process on the buyer side; automation of the selling processes on the seller side

19. Net Marketplaces: Exchanges • Independently owned online marketplaces • connect hundreds of suppliers to potentially thousands of buyers in a dynamic real-time environment • Typically vertical markets in which spot purchases can be made for direct inputs (both goods and services) • make money by charging a commission on each transaction

20. Net Marketplaces: Industry Consortia • Industry-owned vertical markets where long-term contractual purchases of direct inputs can be made from a limited set of invited participants • Serve to reduce supply chain inefficiencies by unifying the supply chain for an industry through a common network and computing platform

21. Pure Types of Net Marketplaces

22. Exercise • Examine the Web site for one of the e-distributors in the previous slide • Compare and contrast it with one of the Web sites listed for e-procurement or Exchanges • If you were the manager of a medium-sized firm, from which of these three would you likely purchase your indirect inputs? Why?

23. Long-term Dynamics of Net Marketplaces Prototype Internet-based marketplace Several thousand created; however, most did not succeed -- did not attract enough players real value of B2B commerce will only be realized when it changes the entire procurement system, supply chain collaboration process among firms Industry consortia sprang up in 1999 and 2000 Industry consortia are profitable because: charge the large buyer firms transaction and subscription fees, but .. benefits more than offset the cost of membership

24. Net Marketplace Trend

25. Exercise • Go to www.covisint.com • Examine the points about “products” and “resources” • What advantages and disadvantages does covisint bring to industrial firms? To other net marketplaces?

26. Private Industrial Networks Dominate B2B commerce Web-enabled networks for coordinating trans-organizational business processes (collaborative commerce) Range in scope from a single firm to an entire industry – e.g., automobiles: Covisint -- Created in 2000 by a consortium of DaimlerChrysler, Ford, and General Motors In the hotel industry Marriott, Hyatt, and three other major hotel chains formed a consortium to create Avendra Central purpose is to provide industry-wide global solutions to achieve the highest levels of efficiency Generally start with a single sponsoring company that “owns” the network Differentiates private industrial networks from consortia usually owned collectively by major firms through equity participation Transforming the supply chain by focusing on continuous business process coordination between companies Coordination includes product design, demand forecasting, asset management, and sales and marketing plans

27. Proctor & Gamble’s Private Industrial Network

28. Private Industrial Networks & Collaborative Commerce CPFR or industry collaborative resource planning, forecasting, and replenishment working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities. goal is to ensure that retail and wholesale shelf space is precisely maintained Supply chain and distribution chain visibility in the past impossible to know where excess capacity existed in a supply or distribution chain Eliminating excess inventories by halting production of overstocked goods can raise the profit margins for all network members because products will no longer need to be discounted in order to move them off the shelves

29. Private Industrial Networks & Collaborative Commerce • Marketing and product design collaboration • can be used to involve a firm’s suppliers in product design and marketing activities as well as the related activities of their supply and distribution chain partners • can ensure that the parts used to build a product live up to the claims of the marketers • Collaborative commerce application used in a private industrial network • can also make possible closed loop marketing in which customer feedback will directly impact product design

30. An Industry-wide Private Industrial Network

31. Exercise • Go to the following Web Sites • Summarize what the site does and the value it creates for customers • Ariba (ariba.com) • IBM Global Services • (http://www-1.ibm.com/services/)