Chapter 6 Company centric b2-b and e-procurement public b2b exchanges and portals public b2b exchanges and portals

1. Chapter 6
Company-Centric B2B and E-Procurement
Public B2B Exchanges and Portals

2. Learning Objectives
1. Describe the B2B field.
2. Describe the major types of B2B models.
3. Discuss the characteristics of the sell-side
marketplace, including auctions.
4. Describe the sell-side intermediary models.
5. Describe the characteristics of the buy-side
marketplace and e-procurement.
www.AuiSuKe.com 2

3. Learning Objectives (cont.)
6. Explain how reverse auctions work in
B2B.
7. Describe B2B aggregation and group
purchasing models.
8. Describe infrastructure and standards
requirements for B2B.
9. Describe Web EDI, XML, and Web
services.
www.AuiSuKe.com 3

4. General Motors’ B2B Initiatives
• The Problem
– Because the automotive industry is very
competitive, GM is always looking for ways to
improve its effectiveness
– GM expects to custom-build the majority of its
cars by 2005
– The company hopes to use the system to
save billions of dollars by reducing its
inventory of finished cars
www.AuiSuKe.com 4

5. General Motors’ B2B Initiatives (cont.)
– GM sells custom-designed cars online
through its dealers’ sites avoiding channel
conflict
– This collaboration requires sharing
information with dealers and suppliers
– Operational problems
• disposing of manufacturing machines that are no
longer sufficiently productive
• procurement of commodity products
www.AuiSuKe.com 5

6. General Motors’ B2B Initiatives (cont.)
• The Solution
– GM established an extranet infrastructure
called ANX (Automotive Network eXchange)
– ANX has evolved into the consortium
exchange covisint.com supported by other
automakers
www.AuiSuKe.com 6

7. General Motors’ B2B Initiatives (cont.)
– Capital assets problem
GM implemented its own electronic market from
which forward auctions are conducted
– Resource procurement problem
GM automated the bidding process using reverse
auctions on its e-procurement site
www.AuiSuKe.com 7

8. General Motors’ B2B Initiatives (cont.)
• The Results
– Within just 89 minutes after the first forward
auction opened, eight stamping presses were
sold for $1.8 million
– Off-line method, a similar item would have
sold for less than half of its online price, and
the process would have taken 4 to 6 weeks
www.AuiSuKe.com 8

9. General Motors’ B2B Initiatives (cont.)
– Online reverse auction prices are significantly
lower than the prices the company had been
paying for the same items previously
negotiated by manual tendering
– Administrative costs per order have been
reduced by 40%
– Most GM dealers and thousands of GM’s
suppliers are connected on a common
extranet platform
www.AuiSuKe.com 9

10. General Motors’ B2B Initiatives (cont.)
• What can we learn…
– Involvement of a large company in three EC
activities:
1. connecting with dealers and suppliers through an
extranet
2. electronically auctioning used equipment to
customers
3. conducting purchasing via electronic bidding
www.AuiSuKe.com 10

11. General Motors’ B2B Initiatives (cont.)
– B2B transactions
• Company can be a seller, offering goods or
services to many corporate buyers
• Company can be a buyer, seeking goods or
services from many corporate sellers (suppliers)
– A company can
• employ auctions
• use electronic catalogs
• use other market mechanisms
www.AuiSuKe.com 11

12. Concepts, Characteristics, and Models of B2B EC
• Basic B2B concepts
Business-to-business e-commerce (B2B EC):
Transactions between businesses conducted
electronically over the
Internet, extranets, intranets, or private
networks; also known as eB2B (electronic
B2B) or just B2B
www.AuiSuKe.com 12

13. Concepts, Characteristics, and Models of B2B EC (cont.)
www.AuiSuKe.com 13

14. Concepts, Characteristics, and Models of B2B EC (cont.)
• B2B characteristics
– Parties to the transaction
Online intermediary: An online third party that
brokers a transaction online between a buyer and
a seller; can be virtual or click-and-mortar
www.AuiSuKe.com 14

15. Concepts, Characteristics, and Models of B2B EC (cont.)
– Types of transactions
• Spot buying: The purchase of goods and services
as they are needed, usually at prevailing market
prices
• Strategic sourcing: Purchases involving long-term
contracts that are usually based on private
negotiations between sellers and buyers
www.AuiSuKe.com 15

16. B2B Characteristics (cont.)
• Types of materials
– Direct materials: Materials used in the production
of a product (e.g., steel in a car or paper in a
book)
– Indirect materials: Materials used to support
production (e.g., office supplies or light bulbs)
– MROs (maintenance, repairs, and operations):
Indirect materials used in activities that support
production
www.AuiSuKe.com 16

17. Concepts, Characteristics, and Models of B2B EC (cont.)
– Direction of trade
• Vertical marketplaces: Markets that deal with one
industry or industry segment
(e.g., steel, chemicals)
• Horizontal marketplaces: Markets that concentrate
on a service, material, or a product that is used in
all types of industries (e.g., office supplies, PCs)
www.AuiSuKe.com 17

18. Concepts, Characteristics, and Models of B2B EC (cont.)
• Basic B2B transaction types
– Sell-side
One seller to many buyers
– Buy-side
One buyer from many sellers
– Exchanges
Many sellers to many buyers
– Collaborative commerce
Communication and sharing of information, design,
and planning among business partners
www.AuiSuKe.com 18

19. www.AuiSuKe.com 19

20. Concepts, Characteristics, and Models of B2B EC (cont.)
– One-to-many and many-to-one: company-centric
transactions
• Company-centric EC: E-commerce that focuses on a single
company’s buying needs (many-to-one, or buy-side) or
selling needs (one-to-many, or sell-side)
• Private e-marketplaces: Markets in which the individual sell-
side or buy side company has complete control over
participation in the selling or buying transaction
www.AuiSuKe.com 20

21. Concepts, Characteristics, and Models of B2B EC (cont.)
– Many-to-many: exchanges
• Exchanges (trading communities or trading exchanges):
Many-to-many e-marketplaces, usually owned and run by a
third party or a consortium, in which many buyers and many
sellers meet electronically to trade with each other; also
called trading communities or trading exchanges
• Public e-marketplaces: Third-party exchanges that are open
to all interested parties (sellers and buyers)
www.AuiSuKe.com 21

22. Concepts, Characteristics, and Models of B2B EC (cont.)
– Collaborative commerce
• Communication, design, planning, and information
sharing among business partners
www.AuiSuKe.com 22

23. Concepts, Characteristics, and Models of B2B EC (cont.)
• Supply chain relationships in B2B
– Supply chain process consists of a number of
interrelated subprocesses and roles
• acquisition of materials from suppliers
• processing of a product or service
• packaging it and moving it to distributors and
retailers
• purchase of a product by the end consumer
www.AuiSuKe.com 23

24. Concepts, Characteristics, and Models of B2B EC (cont.)
– B2B private e-marketplace provides a company
with high supply chain power and high
capabilities for online interactions
– Joining a public e-marketplace provides a
business with high buying and selling
capabilities, but will result in low supply chain
power
– Companies that choose an intermediary to do
their buying and selling will be low on both supply
chain power and buying/selling capabilities
www.AuiSuKe.com 24

25. Concepts, Characteristics, and Models of B2B EC (cont.)
• Virtual services industries in B2B
– Travel services
– Real estate
– Financial services
– Online stock trading
– Online financing
– Other online services
www.AuiSuKe.com 25

26. Concepts, Characteristics, and Models of B2B EC (cont.)
• Benefits of B2B
– Eliminates paper and reduces administrative costs.
– Expedites cycle time
– Lowers search costs and time for buyers
– Increases productivity of employees dealing with buying
and/or selling
– Reduces errors and improves quality of services.
– Reduces inventory levels and costs
– Increases production flexibility, permitting just-in-time
delivery
– Facilitates mass customization
– Increases opportunities for collaboration
www.AuiSuKe.com 26

27. One-to-Many: Sell-Side Marketplaces
• Sell-side e-marketplace: A Web-based
marketplace in which one company sells to
many business buyers from e-catalogs or
auctions, frequently over an extranet
• Three major direct sales methods:
1. selling from electronic catalogs
2. selling via forward auctions
3. one-to-one selling
www.AuiSuKe.com 27

28. One-to-Many: Sell-Side Marketplaces (cont.)
www.AuiSuKe.com 28

29. One-to-Many: Sell-Side Marketplaces (cont.)
• B2B sellers
click-and-mortar manufacturers or
intermediaries, usually distributors or
wholesalers
• Customer service
online sellers can provide sophisticated
customer services
www.AuiSuKe.com 29

30. Example: BigBoxx
• Direct sales from catalogs
– Bigboxx.com (bigboxx.com), based in Hong
Kong, is a B2B retailer of office supplies
• no physical stores and sells products through its online
catalog
• three types of customers:
– large corporate clients
– medium-sized corporate clients
– small office/home offices (SOHO)
• offers more than 10,000 items from 300 suppliers
www.AuiSuKe.com 30

31. Example: BigBoxx (cont.)
– The company’s portal is attractive and easy to use
– Has a tutorial that instructs users on how to use
the Web site
– Once registered, the user can start shopping
using the online shopping cart
– Users can look for items by browsing through the
online catalog or by searching the site with a
search engine
www.AuiSuKe.com 31

32. Example: BigBoxx (cont.)
– Users can pay by cash or by check (upon
delivery), via automatic bank drafts, by credit
card, or by purchasing card.
– Users will soon be able to pay through
Internet-based direct debit, by electronic bill
presentation and payment, or by Internet
banking
www.AuiSuKe.com 32

33. Example: BigBoxx (cont.)
– Using its own trucks
and
warehouses, Bigboxx.
com makes deliveries
within 24 hours or
even on the same day
– Delivery is scheduled
online
www.AuiSuKe.com 33

34. Example: BigBoxx (cont.)
– Value-added services for customers
• check item availability in real time
• track the status of each item in an order
• promotions and suggested items based on customers’ user
profiles
• customized prices
• control and central-approval features
• automatic activation at desired time intervals of standing
orders for repeat purchasing
• a large number of Excel reports and data
www.AuiSuKe.com 34

35. www.alibaba.com
www.AuiSuKe.com 35

36. One-to-Many: Sell-Side Marketplaces (cont.)
• Configuration and customization
– customize products
– get price quotes
– submit orders
www.AuiSuKe.com 36

37. One-to-Many: Sell-Side Marketplaces (cont.)
• Major benefits of direct sales are:
– Lower order-processing costs and less paperwork
– A faster ordering cycle
– Fewer errors in ordering and product configuration
– Lower search costs of products for buyers
– Lower search costs of finding buyers for sellers
– Sellers can advertise and communicate online
– Lower logistics costs
– Ability to offer different catalogs and prices to different
customers
www.AuiSuKe.com 37

38. Selling via Auctions
• Using auctions on the
sell side
– Revenue generation
– Cost savings
– Increased page views
– Member acquisition
and retention
www.AuiSuKe.com 38

39. Selling via Auctions (cont.)
• Selling from the company’s own site
– The company will have to pay for
infrastructure and operate and maintain the
auction site
– If then company already has an electronic
marketplace for selling from e-catalogs, the
additional cost may not be too high
www.AuiSuKe.com 39

40. Selling via Auctions (cont.)
• Using intermediaries
– An intermediary may conduct private auctions
for a seller, either from the intermediary’s or
the seller’s site
– A company may choose to conduct auctions
in a public marketplace, using a third-party
hosting company
www.AuiSuKe.com 40

41. Using Intermediaries in Auctions (cont.)
– Benefits of using intermediaries
• no additional resources are required
• auction set up to show the branding
(company name) of the merchant rather than
the intermediary’s name
• intermediary does the work of:
– controlling data on Web traffic, page views, and
member registration
– setting all the auction parameters (transaction fee
structure, user interface, and reports)
– integrating the information flow and logistics
www.AuiSuKe.com 41

42. Sell-Side Cases
• Direct sales: Cisco Systems
– World’s leading producer of
routers, switches, and network
interconnection services
– Cisco’s portal began with technical support for
customers and developed into one of the
world’s largest direct sales EC sites
www.AuiSuKe.com 42

43. Sell-Side Cases (cont.)
– Customer service
• Applications offered:
– software downloads
– defect tracking
– technical advice
• 85% of customer service inquiries and 95% of software
updates are delivered online
– Online ordering by customers
• Provides online pricing and configuration tools to customers
• 98% are now placed through Cisco Connection Online
(CCO)
– Order status
www.AuiSuKe.com 43

44. Sell-Side Cases (cont.)
• Benefits
– Reduced operating costs for order taking
– Enhanced technical support and customer
service
– Reduced technical support staff cost
– Reduced software distribution costs
– Faster service
www.AuiSuKe.com 44

45. Sell-Side Cases (cont.)
• Sales through an intermediary: Marshall
Industries (now Avnet.com)
– large distributor of electronics components
– known for its innovative use of information
technologies and the Web
www.AuiSuKe.com 45

46. Sell-Side Cases (cont.)
• Marshall Industries EC initiatives
– MarshallNet
intranet that supports salespeople in the field via wireless
devices and portable PCs
– Marshall on the Internet (portal)
B2B portal for customers that offers
information, ordering, and tracking capabilities
– Strategic European Internet
strategic partner in Europe that offers MarshallNet in 17
languages
www.AuiSuKe.com 46

47. Sell-Side Cases (cont.)
• Marshal Industries
– Electronic Design Center
online configuration tool; provides technical specifications;
offers simulation capabilities for making virtual components
– PartnerNet
customized Web pages for major customers and suppliers
– NetSeminar Education and News Portal
online training tool; brings suppliers and customers together
for live interactions
www.AuiSuKe.com 47

48. Sell-Side Cases (cont.)
• B2B intermediary: Boeing’s parts
marketplace
– World’s largest maker of airplanes for
commercial and military customers
– Major goal of Boeing’s intermediary parts
market, called PART is supporting customers’
maintenance needs as a customer service
www.AuiSuKe.com 48

49. Sell-Side Cases (cont.)
– Online strategy is to provide a single point of
online access through which airlines (buyers)
and the maintenance and parts providers
(suppliers) can access data about the parts
they need
– Began using traditional EDI
www.AuiSuKe.com 49

50. Sell-Side Cases (cont.)
– 1996, Boeing introduced its PART page on the
Internet
– Customers around the world could
• check parts availability and pricing
• order parts
• track order status
– Less than a year later, about 50 percent of
Boeing’s customers used PART for parts orders
and customer service inquiries
www.AuiSuKe.com 50

51. Sell-Side Cases (cont.)
– Boeing OnLine Data (BOLD) enables
mechanics and technicians at the airport to
access the technical manuals they need for
repairs
– These manuals are now available in digital
form, and mechanics and technicians can
access them via wireline or wireless devices
www.AuiSuKe.com 51

52. One-from-Many: Buy-Side Marketplaces and E-Procurement
• Buy-side e-marketplace: A corporate-
based acquisition site that uses reverse
auctions, negotiations, group
purchasing, or any other e-procurement
method
www.AuiSuKe.com 52

53. One-from-Many: Buy-Side Marketplaces and E-Procurement
(cont.)
• Procurement methods
– Buy from manufacturers, wholesalers, or retailers
from their catalogs, and possibly by negotiation
– Buy from the catalog of an intermediary that
aggregates sellers’ catalogs or buy at industrial
malls
– Buy from an internal buyer’s catalog in which
company-approved vendors’ catalogs, including
agreed upon prices, are aggregated
www.AuiSuKe.com 53

54. One-from-Many: Buy-Side Marketplaces and E-Procurement
(cont.)
– Conduct bidding or tendering (a reverse auction)
in a system where suppliers compete against
each other
– Buy at private or public auction sites in which the
organization participates as one of the buyers
– Join a group-purchasing system that aggregates
participants’ demand, creating a large volume
– Collaborate with suppliers to share information
about sales and inventory, so as to reduce
inventory and stock-outs and enhance just-in-time
delivery
www.AuiSuKe.com 54

55. One-from-Many: Buy-Side Marketplaces and E-Procurement
(cont.)
• Inefficiencies in traditional procurement
management
– Procurement management: The coordination
of all the activities relating to purchasing
goods and services needed to accomplish the
mission of an organization
– Maverick buying: Unplanned purchases of
items needed quickly, often at non-pre-
negotiated, higher prices
www.AuiSuKe.com 55

56. One-from-Many: Buy-Side Marketplaces and E-Procurement
(cont.)
• e-procurement: The electronic acquisition
of goods and services for organizations
www.AuiSuKe.com 56

57. Benefits of E-Procurement
• Benefits of e-procurement
– Increasing the productivity of purchasing
agents
– Lowering purchase prices through product
standardization and consolidation of
purchases
– Improving information flow and management
www.AuiSuKe.com 57

58. Benefits of E-Procurement (cont.)
– Minimizing the purchases made from noncontract
vendors. Improving the payment process
– Establishing efficient, collaborative supplier
relations
– Ensuring delivery on time, every time
– Reducing the skill requirements and training
needs of purchasing agents
– Reducing the number of suppliers
– Streamlining the purchasing process, making it
simple and fast
www.AuiSuKe.com 58

59. Benefits of E-Procurement (cont.)
– Reducing the administrative processing cost per
order
– Improved sourcing
– Integrating the procurement process with
budgetary control in an efficient and effective way
– Minimizing human errors in the buying or
shipping process
– Monitoring and regulating buying behavior
www.AuiSuKe.com 59

60. One-from-Many: Buy-Side Marketplaces and E-Procurement
(cont.)
www.AuiSuKe.com 60

61. www.AuiSuKe.com 61

62. Implementing E-Procurement
• Implementing e-procurement—major e-
procurement implementation issues
– Fitting e-procurement into the company EC
strategy
– Reviewing and changing the procurement
process itself
– Providing interfaces between
e-procurement with integrated enterprisewide
information systems such as ERP or supply chain
management (SCM)
www.AuiSuKe.com 62

63. Implementing E-Procurement (cont.)
– Coordinating the buyer’s information system with
that of the sellers; sellers have many potential
buyers
– Consolidating the number of regular suppliers to
a minimum and assuring integration with their
information systems, and if possible with their
business processes
www.AuiSuKe.com 63

64. Buy-Side E-Marketplaces: Reverse Auctions
• One of the major methods of e-procurement is
through reverse auctions (tendering or bidding
model)
request for quote (RFQ): The “invitation” to
participate in a tendering (bidding) system
• The reverse auction method is the most
common model for large MRO purchases as it
provides considerable savings
www.AuiSuKe.com 64

65. Reverse Auctions (cont.)
• Conducting reverse auctions
– Thousands of companies use the reverse auction
model
– They may be administered from a company’s Web
site or from an intermediary’s site
– The bidding process may last a day or more
– Bidders may bid only once, but bidders can
usually view the lowest bid and rebid several
times
www.AuiSuKe.com 65

66. Reverse Auctions
A Pioneer: General Electric’s TPN
• Procurement revolution at GE—Trading Process
Network (TPN) Post
– With this online system, the sourcing department
received the requisitions electronically from its
internal customers and sent off a bid package to
suppliers around the world via the Internet
– The system automatically pulled the correct
drawings and attached them to the electronic
requisition forms
www.AuiSuKe.com 66

67. Reverse Auctions
A Pioneer: General Electric’s TPN (cont.)
Benefits of TPN
• labor involved in the procurement process declined by 30%
• cut by 50% staff involved in the procurement process and
redeployed those workers into other jobs
• reduced the number of days to complete a contract by half
• invoices were automatically reconciled with purchase orders
• procurement departments around the world were able to
share information about their best suppliers
www.AuiSuKe.com 67

68. www.AuiSuKe.com 68

69. Reverse Auctions
A Pioneer: General Electric’s TPN (cont.)
– GXS Express Marketplaces is an expanded
system that makes it a public posting place
for other buyers
• Suppliers gain instant access to global buyers
• Dramatically improve the productivity of their bidding
and sales activities
• Increased sales volume
• Expanded market reach and ability to find new buyers
• Lower administration costs
• Shorter requisition cycle time
• Improved sales staff productivity
• Streamlined bidding process
www.AuiSuKe.com 69

70. Other E-Procurement Methods
• Internal marketplace: The aggregated
catalogs of all approved suppliers
combined into a single internal electronic
catalog
www.AuiSuKe.com 70

71. Internal Marketplace (cont.)
– Benefits of internal marketplaces
• corporate buyers quickly find what they
want, check availability and delivery times, and
complete an electronic requisition form
• reduce number of regular suppliers
• easy financial controls
www.AuiSuKe.com 71

72. Internal Marketplace: Desktop Purchasing
• Desktop purchasing: Direct purchasing from
internal marketplaces without the approval of
supervisors and without intervention of a
procurement department
• Desktop purchasing systems: Software that
automates and supports purchasing operations
for nonpurchasing professionals and casual end
users
www.AuiSuKe.com 72

73. www.AuiSuKe.com 73

74. Other E-Procurement Methods (cont.)
• Industrial malls
– Distributors that aggregate products from
hundreds or thousands of suppliers in one
place
• Horizontal—carrying MRO (nonproduction)
materials for use in a variety of industries
• Vertical—carrying products used by one industry
but at various segments of the supply chain
www.AuiSuKe.com 74

75. Other E-Procurement Methods (cont.)
• E-auctions
– sellers are increasingly motivated to sell
surpluses and even regular products via
auctions
– e-auctions provide an opportunity to buyers to
find inexpensive or unique items fairly quickly
www.AuiSuKe.com 75

76. Other E-Procurement Methods (cont.)
• Group purchasing: The aggregation of
orders from several buyers into volume
purchases so that better prices can be
negotiated
www.AuiSuKe.com 76

77. Other E-Procurement Methods (cont.)
– Internal aggregation—companywide orders
are aggregated using the Web and
replenished automatically
– External aggregation—provide SMEs with
better prices, selection, and services by
aggregating demand online and then either
negotiating with suppliers or conducting
reverse auctions
www.AuiSuKe.com 77

78. Other E-Procurement Methods (cont.)
www.AuiSuKe.com 78

79. Other E-Procurement Methods (cont.)
• Purchasing direct goods
E-purchasing direct goods allows buyers to:
• get them faster
• reduce the unit cost
• reduce inventories
• avoid shortages of materials
• expedite their own production processes
www.AuiSuKe.com 79

80. Other E-Procurement Methods (cont.)
• 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
www.AuiSuKe.com 80

81. Infrastructure for B2B
• Major infrastructures needed for B2B
marketplaces
– Telecommunications networks and protocols
– Server(s) for hosting the databases and the
applications
– Software for various activities for executing the
sell-side activities, buy-side activities, PRM, and
building a storefront
– Security for hardware and software
www.AuiSuKe.com 81

82. Other E-Procurement Methods (cont.)
• Electronic data interchange (EDI): The
electronic transfer of specially formatted
standard business documents, such as
bills, orders, and confirmations sent
between business partners
www.AuiSuKe.com 82

83. Other E-Procurement Methods (cont.)
• 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
www.AuiSuKe.com 83

84. Other E-Procurement Methods (cont.)
• Internet-based (Web) EDI: EDI that runs on the
Internet and is widely accessible to most
companies, including SMEs
www.AuiSuKe.com 84

85. Other E-Procurement Methods (cont.)
• Integration
– Integration with existing internal infrastructure
and applications
• EC applications of any kind need to be connected
to the existing internal information systems
– Integration with business partners
• EC can be integrated more easily with internal
systems than with external ones
www.AuiSuKe.com 85

86. Other E-Procurement Methods (cont.)
• The role of standards and XML in B2B
integration
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
www.AuiSuKe.com 86

87. Other E-Procurement Methods (cont.)
– XML can overcome EDI barriers for three
reasons:
1. XML is a flexible language, therefore it expands
the rigid ranges of EDI
2. Message content can be easily read and
understood by people using standard browsers
3. XML-based technologies require less-specialized
skills
www.AuiSuKe.com 87

88. Other E-Procurement
Methods (cont.)
• Web services: An architecture enabling
assembly of distributed applications from
software services and tying them together
www.AuiSuKe.com 88

89. Managerial Issues
1. Can we justify the cost of B2B
applications?
2. Which vendor(s) should we select?
3. Which B2B model(s) should we use?
4. Should we restructure our procurement
system?
www.AuiSuKe.com 89

90. Managerial Issues (cont.)
5. What restructuring will be required for the
shift to e-procurement?
6. What integration would be useful?
7. What are the ethical issues in B2B?
8. Will there be massive disintermediation?
www.AuiSuKe.com 90

91. Summary
1. The B2B field: EC activities between
businesses
2. The major B2B models: sell-side; buy-
side; trade exchanges; collaborative
commerce
3. The characteristics of sell-side
marketplaces: online direct sale by one
seller to many buyers
www.AuiSuKe.com 91

92. Summary (cont.)
4. Sell-side intermediaries: provide value-added
services to manufacturers and business
customers
5. The characteristics of buy-side marketplaces
and e-procurement: expedite purchasing, save
on item and administrative costs, and gain
better control over the purchasing process.
www.AuiSuKe.com 92

93. Summary (cont.)
6. B2B reverse auctions: tendering system used
by buyers to collect bids electronically from
suppliers
7. B2B aggregation and group purchasing:
increasing the exposure and the bargaining
power of companies can be done by
aggregating either the buyers or the sellers.
www.AuiSuKe.com 93

94. Summary (cont.)
8. Infrastructure and standards in B2B:
networks and protocols, multiple
servers, application software, and
security.
9. Web-based EDI, XML, and Web
services: connectivity of B2B is facilitated
by Web services.
www.AuiSuKe.com 94

95. Public B2B Exchanges and Portals

96. Learning Objectives
1. Define e-marketplaces and exchanges
and describe their major types.
2. Describe the various ownership and
revenue models of exchanges.
3. Describe B2B portals.
4. Describe third-party exchanges.
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97. Learning Objectives (cont.)
5. Distinguish between purchasing
(procurement) and selling consortia.
6. Define dynamic trading and describe
B2B auctions.
7. Describe the operation and benefits of
networks of exchanges.
8. Discuss exchange management.
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98. Learning Objectives (cont.)
9. Describe the critical success factors of
exchanges.
10. Discuss implementation issues of
e-marketplaces and exchanges.
9. Describe the major support services of
B2B.
10. Describe the role of extranets in
supporting marketplaces and exchanges.
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99. B2B Electronic Exchanges
• Public e-marketplaces (public exchanges):
Trading venues open to all interested parties
(sellers and buyers) and usually run by third
parties
• Exchange: A many-to-many e-marketplace.
Also known as e-marketplaces, e-markets, and
trading exchanges
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100. B2B Electronic Exchanges (cont.)
• Market maker: The third-party that
operates an exchange (and in many
cases, also owns the exchange)
• Systematic sourcing: Purchasing done in
long-term supplier–buyer relationships
• Spot sourcing: Unplanned purchases
made as the need arises
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101. www.AuiSuKe.com 101

102. www.AuiSuKe.com 102

103. B2B Electronic Exchanges (cont.)
• Vertical exchange: An exchange whose
members are in one industry or industry
segment
• Horizontal exchanges: Exchanges that
handle materials used by companies in
different industries
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104. B2B Electronic Exchanges (cont.)
• Dynamic pricing: A rapid movement of
prices over time, and possibly across
customers, as a result of supply and
demand
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105. B2B Electronic Exchanges (cont.)
• Process that results in dynamic pricing in most
exchanges includes
1. A company posts a bid to buy a product or an offer to sell one
2. Anonymity is often a key ingredient of dynamic pricing
3. Buyers and sellers interact with bids and offers in real time
4. A deal is struck when there is an exact match between a buyer
and a seller on price, volume, and other variables such as
location or quality
5. The deal is consummated, and payment and delivery are
arranged
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106. B2B Electronic Exchanges (cont.)
• Functions of exchanges
– Matching buyers and sellers
– Facilitating transactions
– Maintaining exchange policies and
infrastructure
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107. www.AuiSuKe.com 107

108. B2B Electronic Exchanges (cont.)
• Ownership of exchanges
– An industry giant
– A neutral entrepreneur
– The consortia (or ―third-party‖ co-op)
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109. B2B Electronic Exchanges (cont.)
• Revenue models
– Transaction fees
– Fee for service
– Membership fees
– Advertising fees
– Other revenue
sources
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110. B2B Electronic Exchanges (cont.)
• Governance and organization
– Membership
the community in the exchange
– Site access and security
information should be carefully protected
– Services provided by exchanges
provide many services to buyers and sellers
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111. www.AuiSuKe.com 111

112. www.AuiSuKe.com 112

113. B2B Portals
• B2B portals: Information portals for
businesses
• Pure information portals include:
– directories of products offered by each seller
– lists of buyers and what they want
– other industry or general information
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114. B2B Portals (cont.)
• Vortals: B2B portals that focus on a single
industry or industry segment; ―vertical
portals‖
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115. B2B Portal Examples
• Thomas Register—information portal
– Sellers distribute information on what they
have to sell
– Buyers can find what they need and purchase
over a comprehensive and secure
procurement channel
• reduce costs
• shrink cycle times
• improve productivity
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116. B2B Portal Examples (cont.)
• Alibaba.com—started as a pure information
portal and is moving toward becoming a trading
exchange
– Huge database is a horizontal information portal with
offerings in a wide variety of product categories
– Reverse auctions
– Features–free email, email alerts, etc
– Revenue model—advertisement and fees for special
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117. www.alibaba.com
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118. Sanook.com
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119. www.bangkok.com
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120. Third Party (Trading) Exchanges
• Third-party exchanges are characterized
by two contradicting properties
– they are neutral, not favoring either sellers or
buyers
– they do not have a built-in constituency of
sellers or buyers and sometimes have a
problem attracting enough buyers and sellers
to attain financial viability
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121. Third Party (Trading) Exchanges (cont.)
• A major problem is:
Market liquidity: The degree to which
something can be bought or sold in a
marketplace without affecting its price
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122. Third Party (Trading) Exchanges (cont.)
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123. Third Party (Trading) Exchanges (cont.)
• Buyer aggregation model
buyers’ RFQs are aggregated and then linked
to a pool of suppliers that are automatically
notified of the RFQs
• Suitability
– aggregation models work best with MROs and
services that are well defined, that have
stable prices, and where the supplier or buyer
base is fragmented
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124. Third Party (Trading) Exchanges (cont.)
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125. Consortium Trading Exchanges
• Consortium trading exchange (CTE): An
exchange formed and operated by a group of
major companies to provide industrywide
transaction services
• Three basic types of environments:
1. Fragmented markets
2. Seller-concentrated markets
3. Buyer-concentrated markets
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126. Consortium Trading Exchanges (cont.)
• CTEs, defined by two main criteria:
– whether they focus on buying or selling
– whether they are vertical or horizontal
• 4 types of CTEs
1. Purchasing oriented, vertical
2. Purchasing oriented, horizontal
3. Selling oriented, vertical
4. Selling oriented, horizontal
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127. Consortium Trading Exchanges (cont.)
• Purchasing-oriented consortia
– Vertical Purchasing-Oriented CTEs
all the players are in the same industry
– Horizontal Purchasing-Oriented CTEs
owner-operators are large companies from
different industries that unite for the purpose of
improving the supply chain of MROs used by
most industries
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128. Consortium Trading Exchanges (cont.)
• Selling-oriented consortia
– Most selling-oriented consortia are vertical
– Participating sellers have thousands of
potential buyers within a particular industry
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129. Consortium Trading Exchanges (cont.)
• Other issues for consortia
– Legal challenges for B2B consortia
• level of collaboration among both competitors
and business partners
• antitrust and other competition laws must be
considered
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130. Consortium Trading Exchanges (cont.)
– Critical success factors for consortia
• Appropriate business and revenue models
• Size of the industry
• Ability to drive user adoption
• Elasticity
Elasticity: The measure of the incremental spending
by buyers as a result of the savings generated
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131. Consortium Trading Exchanges (cont.)
• Management of intensive information flow
• Smoothing of supply chain inefficiencies
• Harmonized shared objectives
– Combining consortia and third-party
exchanges
• dot-consortia—large consortia + third-party
owner
• combination may bring about the advantage of
both ownership and minimizing third-party
limitations such as low liquidity
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132. Dynamic Trading:
Matching and Auctions
• Dynamic trading: Exchange trading that
occurs in situations when prices are being
determined by supply and demand (e.g., in
auctions)
• Matching
– supply and demand
– quantity, delivery times, and locations
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133. Dynamic Trading:
Matching and Auctions (cont.)
• Auctions
– Exchanges offer members the ability to
conduct auctions or reverse auctions in
private trading rooms
• auction services as one of its many activities
• fully dedicated to auctions
– Many-to-many public auctions—
vertical, horizontal, run on the Internet or over
private lines
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134. Building E-Marketplaces
• Building e-marketplaces is a complex
process
– usually performed by a major B2B software
company
• Commerce One
• Ariba
• Oracle
• IBM
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135. Building E-Marketplaces (cont.)
• Integration issue
– Seamless integration is needed between the
third-party exchange and the participants’
front and back-office systems
– In private exchanges the seller’s computing
system must be integrated with the customers
systems
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136. Building E-Marketplaces (cont.)
– External communications
• Web/client access
• Data exchange
• Direct application integration
• Shared procedures
– Process and information coordination in
integration
how to coordinate external communications
with internal information systems
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137. Building E-Marketplaces (cont.)
– Use of Web services in integration
Web Services enable different Web-based
systems to communicate with each other
using Internet-based protocols such as
XML
– System and information management in
integration
management of software, hardware, and
several information components, including
partner-profile information, data and
process definitions, communications and
security settings, and users’ information
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138. Support Services for Public
and Private Marketplaces
• Directory services and search engines
– Directory services help buyers and sellers
manage the task of finding potential partners
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139. Support Services for Public
and Private Marketplaces (cont.)
• Partner relationship management (PRM):
Business strategy that focuses on
providing comprehensive quality service to
business partners
• E-communities and PRM
B2B application needs to provide community
services such as chat rooms, bulletin
boards, and possibly personalized Web pages
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140. Support Services for Public
and Private Marketplaces (cont.)
• Integration (as per Keenan Report)
– Business-to-exchange (B2X) hubs connect all
of the Internet business services
• e-merchant services
• exchange infrastructure
• buying and selling
• member enterprises
• other B2X exchanges
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141. Implementation Issues
• Private vs. public exchanges
Private exchanges: E-marketplaces that are
owned and operated by one company. Also
known as company-centric marketplaces
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142. Implementation Issues (cont.)
• Problems with private exchanges
– Transaction fees—required to pay transaction fees
with existing customers
– Sharing information—do not want to share business
data with competitors
– Cost savings—not great enough to attract buyers
– Recruiting suppliers—lose direct contact with
customers
– Too many exchanges
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143. Implementation Issues (cont.)
• Supply chain improvers
– Companies want to streamline their internal
supply chains, which requires integration with
internal operations instead of ―plugging in‖ to
an exchange’s infrastructure
• Major problem is trust in the large
corporation running the exchange
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144. Implementation Issues (cont.)
• Software agents in B2B enable customized
syndication of content and services from multiple
sources on the Internet to any device connected
to the Internet
– provide real-time, tighter integration between buyers
and sellers
– facilitate management of multiple trading partners and
their transactions across multiple virtual industry
exchanges
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145. Example: Asite
• Asite’s B2B marketplace for the
construction industry
– B2B e-marketplace for the construction
industry in the United Kingdom
– This industry is typified by a high degree of
physical separation and fragmentation, and
communication among the members of the
supply chain is a primary problem
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146. Asite (cont.)
– Two of the major advantages of the Internet:
• ability it provides to communicate more
effectively
• increased processing power made possible by
Internet technologies
– Asite decided not to build its own
technology, but to establish partnerships with
technology vendors that have highly
specialized products
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147. Asite (cont.)
• Commerce One provides the business solution
for the portal
• Microsoft provides the technology platform
and core applications
• Attenda is the designer and manager of the
Internet infrastructure
– Asite is committed to strong partnerships that
allow it to seamlessly interact with other e-
marketplaces
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148. Asite (cont.)
– Internet browser is all that is needed to
connect to Asite’s portal
– Ease of access makes it particularly well
suited to an industry such as construction
• Construction firms streamline their supply
chains
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149. Asite (cont.)
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150. Managing Exchanges
• Open standards mean that the technology
can be incorporated easily with
participating firms’ back-end
technologies, allowing full visibility of the
supply and demand chains
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151. Managing Exchanges (cont.)
• Networks of exchanges (E2E)
– Large corporations may work with several
exchanges, and they would like these
exchanges to be connected in a seamless
fashion
Commerce One and Ariba developed a strategy
that allows them to plug a broad range of
horizontal exchanges into their main networks
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152. Managing Exchanges (cont.)
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153. Managing Exchanges (cont.)
• Centralized management
– Managing exchanges and providing services
to participants on an individual basis is
expensive
– Build ―families‖ of exchanges managed jointly
in order to operate several exchanges from a
unified, centralized place
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154. Managing Exchanges (cont.)
– Manages all of the exchanges’:
• Catalogs
• Auction places
• Discussion forums
– Managing and centralizing:
• Accounting
• Finance
• Human resources
• IT services
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155. Managing Exchanges (cont.)
• Critical success factors for exchanges
according to Ramsdell:
1. Early liquidity
2. The right owners
3. The right governance
4. Openness
5. A full range of services
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156. Managing Exchanges (cont.)
• Other CSF:
– Importance of domain expertise
– Targeting inefficient industry processes
– Targeting the right industries
– Brand building
– Exploiting economies of scope
– Choice of business/revenue models
– Blending content, community, and commerce
– Managing channel conflict
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157. Managing Exchanges (cont.)
• New directions in B2B marketplaces
– Early failures of exchanges were due mainly
to the failure of these marketplaces to foster a
broad-based sharing of information
– Recognize the fundamental asset provided by
their member base is the unique knowledge of
the industry
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158. Managing Exchanges (cont.)
– e-distributors
• Take title to the goods they sell
• Aggregate those goods for the convenience of
buyers
• Advise buyers which to choose
• Reach hard-to-find buyers
• Result in extra value for buyers and decent
profits for sellers
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159. Managerial Issues
1. Have we ―done our homework‖?
2. Can we use the Internet?
3. Which exchange to join?
4. Will joining an exchange force
restructuring?
5. Will we face channel conflicts?
6. What are the benefits and risks of joining
an exchange?
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160. Summary
1. E-marketplaces and exchanges defined
and the major types of exchanges.
2. Ownership and revenue models.
3. B2B portals.
4. Third-party exchanges.
5. Consortia and e-procurement.
6. Dynamic pricing and trading.
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