1. CSC 330 E-Commerce Teacher Ahmed Mumtaz Mustehsan Ahmed Mumtaz Mustehsan GM-IT CIIT Islamabad GM-IT CIIT Islamabad CIIT Virtual Campus, CIIT COMSATS Institute of Information TechnologyT1-Lecture-16 T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-1

2. T1-Lecture-16 B2B E-commerce: Supply Chain Management and Collaborative CommerceChapter-12 For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-2

3. B2B E-Commerce & supply Chain Management B2B Trade in 2010 is US only was $ 16 Trillions and with B2B e-commerce was $ 3.6 Trillions. Some Basic Terminologies: Total Inter-firm Trade The total flow of value among firms. B2B Commerce All types of computers enabled inter firm trade. Internet-based B2B Commerce The portion of B2B commerce that is enabled by the internet. Automated Order Entry systems Involved the use of telephone modems to send digital orders. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-3

4. B2B E-Commerce & supply Chain Management Some Basic Terminologies: (Continued) Selle- side Solutions Seller biased market that are owned by ; and show only goods from, a single seller. EDI (Electronic Data Interchange) A communication standard for sharing business documents and settlement information among a small number of firms. Buyer-side solutions: Buyer biased market that are owned by buyers and that aimed to reduce the procurement cost of supplies for buyers. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-4

5. B2B E-Commerce & supply Chain Management Some Basic Terminologies: (Continued) Vertical market One that provides expertise and products for specific industry. Horizontal market Market that serve many different industries. B2B Electronics Storefronts Online catalogue of products made available to the public marketplace by a single supplier. Net Marketplace Brings hundreds to thousands of suppliers and buyers into a single internet-based environment to conduct trade. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-5

6. B2B E-Commerce & supply Chain Management Some Basic Terminologies: (Continued) Private Industrial Networks/ Private Trading Exchange (PTX) Internet based Communications environments that extend far beyond procurement to encompass truly collaborative commerce. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-6

7. The Growth of B2B- Industry Forecasts In the period 2010 to 2014 B2B E-Commerce projected growth was 30% to 35% of total inter firm trade. Not all industries similarly affected by B2B e-commerce Not all industries would benefit equally Factors influencing move to e-commerce Significant utilization of EDI Large investments in IT and Internet infrastructure e.g., aerospace and defense, computer, and industrial equipment Market concentrated on purchasing and/or selling or both are ripe for B2B growth. e.g., energy, chemical industries, Health Insurance (National Medical Record) T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-7

8. Potential Benefits of B2B E-commerce Lower administrative costs Lower search costs for buyers Reduced inventory costs ◦ Increasing competition among suppliers (increasing price transparency) ◦ Reducing inventory carried Lower transaction costs: ◦ Eliminating paperwork ◦ Automating parts of procurement process T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-8

9. Increased production flexibility by ensuring just-in- time parts delivery Improved quality of products by increasing cooperation among buyers and sellers Decreased product cycle time by sharing of designs and production schedules Increased opportunities for collaborating with suppliers and distributors Greater price transparency Potential Benefits of B2B E-commerce T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1-9

10. The Procurement Process and the Supply Chain Procurement process: The way firms purchase materials they need, to make products Supply chain: Firms that purchase goods, their suppliers, and their suppliers’ suppliers, and relationships and processes involved Steps in procurement process: Deciding who to buy from and what to pay Completing transaction T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 10

11. The Procurement Process T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 11

12. Types of Procurement Firms purchase two types of goods 1. Direct goods: integrally involved in production process 2. Indirect goods: all goods not directly involved in production process (MRO goods) Firms use two methods to purchase 1. Contract purchasing: ◦ Involves long-term written agreements to purchase specified products, with agreed-upon terms and quality 2. Spot purchasing: ◦ Involves purchase of goods based on immediate needs in larger marketplaces that involve many suppliers T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 12

13. Types of Procurement Procurement is highly information intensive and labor intensive—3.3 million U.S. workers Use of Internet can simplify process and reduce Search, Research, Negotiating costs Multi-tier supply chain ◦ Complex series of transactions between firm and thousands of suppliers T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 13

14. The Multi-Tier Supply Chain T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 14

15. The Role of Existing Legacy Computer Systems Legacy computer systems Generally older mainframe and minicomputer systems used to manage key business processes within firm MRP systems (Materials Requirements Planning) Enable firms to predict, track, and manage parts of complex manufactured goods. Generate Production schedule and required BoM to meet the schedule. ERP systems (Enterprise Resource planning) More sophisticated MRP systems that include Human Resources and Financial components Received Purchase Order is entered in to ERP to determine the BoM, schedule, HR requirements, Invoice against P.O. and payments to the suppliers. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 15

16. Trends in Supply Chain Management and Collaborative Commerce Supply chain management (SCM): ◦ Wide variety of activities that firms and industries use to coordinate key players in their procurement process Major developments in SCM 1.Supply chain simplification 2.Electronic Data Interchange 3.Supply Chain Management systems 4.Collaborative Commerce T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 16

17. 1. Supply Chain Simplification Simplified Procurement Process Essential for Just-In-Time production models Typically achieved by: Working with strategic group of suppliers to reduce product and administrative costs, while improving quality Purchasing under long-term contracts; ensured certain business to the selected supplier against; specified quality, cost, and timing goals. May involve Joint product development and design ◦ Integration of computer systems ◦ Tight coupling: A method for ensuring that a suppliers precisely deliver the order parts, at a specific time and particular location, to ensure the production process is not delayed due to lack of parts. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 17

18. 2. Electronic Data Interchange (EDI) Broadly defined communications protocol for exchanging documents among computers Stage 1: 1970s–1980s Document automation (B2B e-commerce existed much before Internet) Stage 2: Early 1990s Document elimination Stage 3: Mid-1990s Move toward continuous replenishment/access model Today: EDI provides for exchange of critical business information between computer applications supporting wide variety of business processes Firms using XML to define EDI. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 18

19. The Evolution of EDI as a B2B Medium 1.Standardization of Documentation such as P.O, invoice, shipping documents, payments exchanges electronically. 2.Documents were replaced with Production Process, Schedule and Inventory 3.Suppliers were given online access to the production system and inventory; Eliminated manual procurement T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 19

20. 2. Electronic Data Interchange (EDI) Strength and Weakness of EDI The ability to support direct commercial transection among strategically related firms is both a strength as well as a weakness ? Strength we have studied !! The weakness: Not suited for the development of e-marketplace, a digital arena to negotiate best price. Permit bilateral not multilateral dynamic relationship of a tru marketplace. Does not provide price transparency among a large number of suppliers. Does not have rich communication (e-mail, graphic). Expensive proposition requires small-firms to implement EDI to supply large firms. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 20

21. 3. Supply Chain Management Systems Focused upon ERP system and Continuous Replenishment: SCM, Continuously link activities of buying, making, and moving products from suppliers to purchasing firms Also Integrates demand side of business equation by including order entry system in the process With SCM system and continuous replenishment, the inventory is eliminated and production begins only when order is received (Demand manufacturing) Hewlett Packard’s SCM system: elapsed time from order entry to shipping PC is 48 hours. The delivery through third party is monitored as it is tracked through manufactured SCM system. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 21

22. Supply Chain Management Systems T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 22

23. Collaborative Commerce Use of digital technologies enabling organizations to collaboratively design, develop, build, and manage products through life cycles Direct extension of SCM systems and supply chain simplification Involves move from transaction focus to relationship focus among supply chain participants Unlike EDI, more like an interactive teleconference among members of supply chain. Involves customers and suppliers in the development of products for the most parts with the development of rich communication environment. Example: Group DekkoGroup Dekko T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 23

24. Elements of a Collaborative Commerce System T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 24

25. Two Types of Internet-Based B2B Commerce 1. Net marketplaces: Bring together potentially thousands of sellers and buyers in single digital marketplace operated over Internet Transaction-based Support many-to-many as well as one-to-many relationships 2. Private industrial networks: Bring together small number of strategic business partner firms that collaborate to develop highly efficient supply chains Relationship-based Support many-to-one and many-to-few relationships Largest form of B2B e-commerce. Generate 10 times the reveneue as that of Net marketplace. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 25

26. Two Main Types of Internet-Based B2B Commerce T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 26

27. Net Marketplaces Various ways to classify Net marketplaces: Pricing mechanism, nature of market served, ownership By business functionality ◦ What businesses buy? (Direct vs. Indirect goods) ◦ How business buy? (Spot purchasing vs. long- term sourcing) Four main types 1.E-distributors 2.E-procurement networks 3.Exchanges 4.Industry consortia T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 27

28. Pure Types of Net Marketplaces T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 28

29. Other Chacteristics of Net Marketplaces T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc Slid e 11- 29

30. E-distributors Most common type of Net marketplace Electronic catalogs representing products of thousands of direct manufacturers Typically independently owned intermediaries Offer industrial customers single source to purchase indirect goods on spot basis Typically horizontal; serve many different industries with products from many different suppliers Usually fixed price; discounts for large customers Example: W.W. GraingerW.W. Grainger T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 30

31. E-distributors T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 31

32. E-procurement Net Marketplaces Independently owned intermediaries Connect hundreds of suppliers of indirect goods Firms pay fees to join market Typically for long-term contractual purchasing of indirect goods Revenues from transaction fees, licensing consultation services and software, network fees Offer value chain management (VCM) services VCM: Automation of entire procurement process on buyer side, automation of selling business processes on seller side Many-to-many market Example: AribaAriba T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 32

33. E-procurement Net Marketplaces T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 33

34. Exchanges Independently owned online marketplaces Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environment Typically vertical markets; spot purchasing requirements of large firms in single industry Charge commission fees on transaction Variety of pricing models used ◦ Online negotiation, auction, RFQs/RFPs, fixed Tend to be buyer-biased Suppliers disadvantaged by competition Many have failed due to low liquidity T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 34

35. Exchanges T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 35

36. Industry Consortia Industry-owned vertical markets Enable buyers to purchase direct inputs from limited set of invited participants Emphasize long-term contractual purchasing, stable relationships, creation of data standards Ultimate objective: ◦ Unification of supply chains within entire industries through common network and computing platform Make money from transaction and subscription fees Offer many different pricing mechanisms ◦ Auctions, fixed prices, RFQs, negotiated Can force suppliers to use consortia’s networks T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 36

37. Industry Consortia T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 37

38. The Long-Term Dynamics of Net Marketplaces Pure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement process Consortia and exchanges beginning to work together in selected markets E-distributors joining large e-procurement systems and industry consortia as suppliers Movement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goods T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 38

39. Net Marketplace Trends T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 39

40. End of: T1-Lecture-16 Chapter-12 B2B E-commerce: Supply Chain Management and Collaborative Commerce Thank You T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc 1- 40