Public B2B Exchanges and Portals Chapter 7 Public B2B Exchanges and Portals

ChemConnect: The World Chemical Exchange The Problem Before the Internet, the B2B trading process was slow, fragmented, ineffective, and costly Buyers paid too much, sellers had high expenses, and intermediaries were needed to smooth the trading process © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) The Solution Traders meet electronically in a large Internet marketplace Save on transaction costs, reduce cycle time, and find new markets and trading partners around the globe © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) ChemConnect provides a trading marketplace and an information portal to over 7,500 members in 135 countries Members are: Producers Consumers Distributors Traders Intermediaries involved in the chemical industry © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) Trading Center consists of 3 trading areas Marketplace for buyers Marketplace for sellers Commodity market platform © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) ChemConnect members use the Trading Center to streamline sales and sourcing processes by automating requests for quotes, proposals, and finding new suppliers The center enables a member to negotiate more efficiently with existing business partners as well as with new companies the member may invite to the table in complete privacy © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) The revenue model includes: members’ annual transaction fees monthly or annual subscription fees (for trading and for auctions) fulfillment service fees Three trading locations provide up-to-the-minute market information Business partners provide several support services (payments, delivery, etc.) © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) The Results Benefits of ChemConnect to its members are: more efficient business processes lower overall transaction costs time saved during negotiations and biddings sellers reach more buyers and liquidate surpluses rapidly © Prentice Hall 2004

ChemConnect: The World Chemical Exchange (cont.) What we can learn… Electronic exchange is owned and operated by a third-party intermediary Buyers and sellers, as well as other business partners, congregate electronically to conduct business © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

B2B Electronic Exchanges (cont.) © Prentice Hall 2004

B2B Electronic Exchanges (cont.) © Prentice Hall 2004

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 © Prentice Hall 2004

B2B Electronic Exchanges (cont.) Dynamic pricing: A rapid movement of prices over time, and possibly across customers, as a result of supply and demand Dynamic Pricing © Prentice Hall 2004

B2B Electronic Exchanges (cont.) Process that results in dynamic pricing in most exchanges includes A company posts a bid to buy a product or an offer to sell one Anonymity is often a key ingredient of dynamic pricing Buyers and sellers interact with bids and offers in real time 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 The deal is consummated, and payment and delivery are arranged © Prentice Hall 2004

B2B Electronic Exchanges (cont.) Functions of exchanges Matching buyers and sellers Facilitating transactions Maintaining exchange policies and infrastructure © Prentice Hall 2004

B2B Electronic Exchanges (cont.) © Prentice Hall 2004

B2B Electronic Exchanges (cont.) Ownership of exchanges An industry giant A neutral entrepreneur The consortia (or “third-party” co-op) © Prentice Hall 2004

B2B Electronic Exchanges (cont.) Revenue models Transaction fees Fee for service Membership fees Advertising fees Other revenue sources © Prentice Hall 2004

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 © Prentice Hall 2004

B2B Electronic Exchanges (cont.) © Prentice Hall 2004

B2B Electronic Exchanges (cont.) © Prentice Hall 2004

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 © Prentice Hall 2004

B2B Portals (cont.) Vortals: B2B portals that focus on a single industry or industry segment; “vertical portals” © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

Third Party (Trading) Exchanges (cont.) © Prentice Hall 2004

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 © Prentice Hall 2004

Third Party (Trading) Exchanges (cont.) © Prentice Hall 2004

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: Fragmented markets Seller-concentrated markets Buyer-concentrated markets © Prentice Hall 2004

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 Purchasing oriented, vertical Purchasing oriented, horizontal Selling oriented, vertical Selling oriented, horizontal © Prentice Hall 2004

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 © Prentice Hall 2004

Consortium Trading Exchanges (cont.) Selling-oriented consortia Most selling-oriented consortia are vertical Participating sellers have thousands of potential buyers within a particular industry © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

Dynamic Trading: Matching and Auctions (cont.) 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 © Prentice Hall 2004

Building E-Marketplaces Building e-marketplaces is a complex process usually performed by a major B2B software company Commerce One Ariba Oracle IBM © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

Implementation Issues Private vs. public exchanges Private exchanges: E-marketplaces that are owned and operated by one company. Also known as company-centric marketplaces © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

Asite (cont.) Construction firms streamline their supply chains 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 © Prentice Hall 2004

Asite (cont.) © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

Managing Exchanges (cont.) © Prentice Hall 2004

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 © Prentice Hall 2004

Managing Exchanges (cont.) Manages all of the exchanges’: Catalogs Auction places Discussion forums Managing and centralizing: Accounting Finance Human resources IT services © Prentice Hall 2004

Managing Exchanges (cont.) Critical success factors for exchanges according to Ramsdell: Early liquidity The right owners The right governance Openness A full range of services © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004

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 © Prentice Hall 2004