Part I Company-Centric B2B

Concepts and Characteristics of B2B EC (cont.) How is B2B conducted? Directly between buyer and seller Via an online intermediary Along the supply chain With or without intermediaries Types of transactions Spot buying —determined by dynamic supply and demand Strategic sourcing —long term contracts

Figure 6-1 B2B Supply Chain

Concepts and Characteristics of B2B EC (cont.) Supply chain relationships (sharing materials, process information and knowledge worker assets) Interrelated subprocesses and roles Acquisition of materials Processing products and services Moving to distributors Purchase by consumer

Concepts and Characteristics of B2B EC (cont.) Entities of B2B EC Selling company —marketing management perspective Buying company —procurement management perspective Electronic intermediaries —optional third party directory service provider (scope of service may be extended to order fulfillment) Trading platforms —pricing and negotiation protocol (auctions, reverse auctions)

Concepts and Characteristics of B2B EC (cont.) Entities of B2B EC (What are they sharing?) Payment services —mechanism for transferring money to sellers Logistics providers —logistics to complete transaction (packaging, storage, delivery) Network platforms —Internet, VAN, intranet, extranet (and protocols) Back-end integration —connecting to ERP systems, databases, functional applications

Concepts and Characteristics of B2B EC (cont.) Information processed in B2B Product Customer Supplier Product process Transportation Inventory Supply chain Competitor Sales and marketing Supply chain process and performance

Benefits Electronic intermediaries in B2B Benefits of B2B models Consumers and business may share intermediaries Businesses may use different intermediaries with different suppliers Benefits of B2B models Eliminate paper-based systems Expedite cycle time Reduce errors Increase employee productivity Reduce costs Increase customer service and partnership management

B2B Models Company-centric models Sell-side marketplace (one-to-many) Buy-side marketplace (many-to-one) Many-to-many marketplaces—the exchange Buyers and sellers meet to trade Trading communities Trading exchanges Exchanges

B2B Models (cont.) Other B2B models and services For the purpose of selling For the purpose of buying Value chain integrators Value chain service providers Information brokers Vertical vs. horizontal marketplaces Vertical—one industry or industry section Horizontal—service or product used in several types of industries

B2B Models (cont.) Virtual service industries in B2B Travel and tourism services Real estate Electronic payments Online stock trading Online financing Other online services

Sell-Side Marketplace Architecture

Sell-Side Marketplaces:One-to-Many Virtual sellers—Bigboxx.com.hk of Hong Kong B2B office supply retailer services (corporate clients) Goal—sell products in various SE Asian countries (many products 10,000 items, many suppliers -300) Company portal Browse online catalogs Use search engines Payments (many types available) Delivery Owns trucks and warehouses Delivery scheduled online Same day (within an hour) Specifically scheduled time Ordering system integrated with SAP-based back-office system

Sell-Side Marketplaces: One-to-Many (cont.) Virtual sellers—Bigboxx.com.hk of Hong Kong (cont.) Value-added services Track status of order Check stock availability Promotions Customized prices Group accounts and central approval—for businesses with multiple branches Standing orders automatically activated Large number of reports and data available

Sell-Side Marketplaces: One-to-Many (cont.) Customer service General Electric 20 million calls/year about appliances Reduced cost of each call from $5 to $0.20 Milacron, Inc. Site contains 55,000 products Easy to use Securely handles selection, purchase, application Technical service—expanded to provide a higher level of service than previously available at the site

Sell-Side Marketplaces: One-to-Many (cont.) Direct sales from catalogs Configuration and customization Efficient customization for direct sales Business customers Customize products Receive price quote Submit order Successful cases Dell Intel IBM Cisco

Sell-Side Marketplaces: One-to-Many (cont.) Direct sales from catalogs Benefits Reduces costs (to buyers and sellers) and errors during the process Speeds up order cycle Ability to customize products Offer different prices to different customers Limitations Channel conflicts with distribution systems High cost when traditional EDI used Large number of business partners is needed to justify system

Selling Side: Auctions Forward auctions—quick disposal of items Revenue generation Member acquisition and retention—bidding transactions result in additional registered members Selling from own site when: Large companies that conduct auctions frequently don’t benefit from using intermediaries E-marketplace already in use, cost of adding auction not too high Using intermediaries when: No resources required, control auction information Service: researching, searching and reporting on auction activities

Selling Side Billing and collection Automatic calculation of shipping weights and charges Payment—encrypted credit card data Billing information—easily downloaded into existing systems Successful if: Sufficient number of loyal customers Products well known Price not major purchasing criteria

Sell-Side Case: CISCO Connection Online (CCO) Benefits—saves the company $363 million per year in: Technical support Human resources Software distribution Marketing material Customer service—Cisco Connection online Online ordering—Internet Product Center builds virtually all products to order Order status—customer tools for finding answers to order status inquiries

Cisco Connection Online (CCO) Benefits to Cisco Reduced operating costs for order taking Enhanced technical support and customer service Reduced technical support staff cost Reduced software distribution costs Lead times reduced fro 4-10 days to 2-3 days Benefits to customers Quick order configuration Immediate cost determination Collaboration with Cisco staff

Sell-Side Intermediaries Marshall Industries - multinational distributor of electronic components Products and services MarshallNet, portal, PartnerNet, NetSeminar, etc Strategy Continuous improvement, Team-based organization, flat hierarchy, decentralized decision making, Profit sharing w/employees. CRM highly promoted, Web-based services EC initiatives supported by: Changing internal organization Changing internal procedures

Sell-Side Intermediaries (cont.) Boeing’s PART Intermediary between the airlines and parts’ suppliers Provides a single point of online access through which airlines and parts’ providers can access the data needed Goal: provide its customers with one-stop shopping for online parts and maintenance information and ordering capability

Sell-Side Intermediaries (cont.) Boeing’s PART Spare parts business using traditional EDI Mechanic tells purchasing department parts are needed, purchase is approved, purchase is made Large airlines connect to Boeing's VAN Boeing finds part and delivers Debut of PART on the Internet Encourages customers to order parts electronically—cheap, easy, fast 50% of customers using Internet within first year

Sell-Side Intermediaries (cont.) Benefits of Boeing PART online New sales opportunities Benefits to Boeing’s customers Increased productivity—less time searching for information Reduced costs—delays at gate reduced because all information is available Increased revenues—faster service provides time savings Customer service online reduces (calls on orders, data entry) Portable access to technical drawings/support Boeing On Line Data (BOLD) provides availability to: Engineering drawings Manuals Catalogs Other technical information Portable Maintenance Aid (PMA)—solves maintenance problems

Buy Side: One-from-Many, E-Procurement Purchasing agents (buyers) Direct (materials) purchasing Use of material is scheduled Not a shelf item Indirect (materials) purchasing MROs (Maintenance,Repair,Operations) Nonproduction materials Inefficiencies in procurement management of indirect materials

Figure 6-3 A Traditional Purchasing Process Flow Source: ariba.com, February 2001.

Buy Side: One-from-Many, E-Procurement (cont.) Innovative procurement management Innovative purchasing as strategic approach to increase profit margins Web facilitation includes: Electronic tendering Volume purchasing Aggregating supplier catalogs at buyer’s site Group purchasing Others

Buy Side: One-from-Many, E-Procurement (cont.) Goals of procurement reengineering Increase purchasing agent productivity Lower purchasing prices of items (through standardization, and consolidation of buys) Improve information flow and management Minimize maverick (unplanned) buying from non-contract vendors Improve payment process Streamline purchasing process to make it: Simple Fast

Buy Side: One-from-Many, E-Procurement (cont.) Goals of procurement reengineering (cont.) Reduce administrative processing cost per order Find new suppliers and vendors to provide faster/cheaper goods and services Integrate procurement process with budgetary control, efficiently and effectively Minimize human errors in buying or shipping process

Figure 6-4 Buy-Side B2BMarketplace Architecture

Buy Side: One-from-Many, E-Procurement (cont.) Direct vs. indirect sourcing Tools to automate purchasing goods Direct or mission critical 80% of manufacturer’s expenditure Long-term relationship with vendor of known quality goods Tight integration with suppliers along supply chain Indirect—use of public exchanges for indirect sourcing

Buy Side: Reverse Auctions Pre-Internet Reverse auction process Prepare description of product to be produced Announce project via ads, mail, telephone Send detailed information to interested vendors Vendors prepare proposals Bidders submit document proposals Proposals evaluated Problems: Laws Expensive Errors

Buy Side: Reverse Auctions (cont.) Web-based reverse auction process Buyers prepare bidding project information Buyers post project on portal Identify potential suppliers Invite suppliers to bid Suppliers download project information Suppliers submit electronic bid Reverse auction in real-time, or it can take a few days Buyers evaluate and award contract

Buy Side: Reverse Auctions (cont.) Web-based reverse auction process Benefits: Electronic process is faster Administratively much less expensive Enables location of cheapest possible products

Aggregating Catalogs Aggregating suppliers’ catalogs: an internal marketplace Maverick buying to save time leads to high prices Aggregating all approved suppliers’ catalogs in one place Reduced number of suppliers Buyers at multiple corporate locations Fewer and remote suppliers Larger quantity/lower costs

Group Purchasing Group purchasing—orders from several buyers are aggregated Internal aggregation Economy of scale Reduced transaction processing cost External aggregation Aggregating demand online Putting together orders from multiple buyers to make large volumes/lower costs

Electronic Bartering Electronic bartering Exchange of goods or services without the use of money Exchange a surplus for other need Bartering exchange Submit surplus to exchange for points Points used to buy what company needs Benefits: Faster than manually Easier to match

Collaborative Commerce (C-Commerce) Web-based systems used between and among suppliers for: Communication Design Planning Information sharing Information discovery

Suppliers Extranet: Hudson Dayton

Collaborative Commerce (C-Commerce) (cont.) Reduce design cycle time by connecting suppliers: Adaptec, Inc. Microchip manufacturer supplying electronic equipment makers Outsources manufacturing tasks Delivery times exceeded their competitors Solution to the problem Extranet and enterprise-level supply chain integrated software Significantly reduced order-to-product delivery time

Collaborative Commerce (C-Commerce) (cont.) Reduce product development time by connecting suppliers: Caterpillar, Inc. Heavy machinery manufacturer uses extranet Request for customized component directly to designers and suppliers ship to buyers Connect engineering and manufacturing division with worldwide Suppliers Distributors Overseas Factories Customers

Collaborative Commerce (C-Commerce) (cont.) Other examples of c-commerce Tricon Restaurant International—global brand marketing management RE/MAX—real estate franchiser improved communication and collaboration between independent owners Marriott International—links corporations, franchising partners, suppliers, customers Nygard of Canada—interorganizational collaboration

Integration ERP software Customer, supplier, and other databases Legacy systems Catalog (product) information Inventory systems Sales statistics Decision support systems (DSS) and SCM applications

Integration (cont.) Integration with existing information systems Issues in integrating with back-end information systems: Intranet-based work flow Database management systems (DMBS) Application packages ERP Back-end sell-side integration works for sellers but not buyers and vice versa

Integration (cont.) Integration with business partners Easy integration with one company-centric side Not easy to integrate for many buyers or sellers Need buyer owned shopping cart that can interface with back-end information systems

Implementation Issues Justification and prioritization Must conduct cost benefit analysis of proposed projects Include organizational impacts Possible channel conflicts Dealing with resistance to change due to processes reengineering Cost-benefit analysis related to: Finding B2B opportunities Prioritizing potential initiatives

Implementation Issues (cont.) Vendor selection Primary vendor uses its software and procedures, adds partners as needed Integrator mixes and matches existing products and vendors to create “best of the breed” Affiliate programs (referral program or intermediaries) Implementing e-procurement Fit e-procurement into EC strategy Review and change procurement process itself If ERP or SCM is in place—integrate e-procurement, If not in place—BPR before implementation Coordinate buyer’s information system with seller’s

Managerial Issues B2B marketing—sell-side marketplaces require advertisement and incentives Which models to use and when—need for implementation strategies and prioritization Purchase process reengineering (BPR) Establish buy-side marketplace on its server if volume is big enough to attract major vendors Join third-party intermediary-oriented marketplace if volume is small

Managerial Issues (cont.) Integration—trading in e-marketplaces is interrelated with logistics Particularly true in many-to-many exchanges Company-centric marketplaces must integrate: Logistics Other support services

Part I (cont.) B2B Support Services modified by Judith Molka-Danielsen

The Evolution of E-Marketplaces

Financial B2B Services Purchasing Cards are an advantage to big government agencies or deparments. Electronic letters of credit (for big businesses) Benefits to seller Credit risk reduced Payment highly assured Political/country risk reduced Benefits to the buyer Allows negotiation of lower purchase price Expansion of supply sources Payment received after document inspected by issuing bank

Figure 8-4 Participants and Process of Using a Purchasing Card Source: napcp.org/napcp.nsf/Cardparticipants!OpenPage. Used with permission of NAPCP.

Financial B2B Services (cont.) Payments (cont.) Payments in B2B global trading Venture capital to fund e-commerce initiatives Internet incubators (show ad) Tax calculation services DPC HotSamba Sales tax clearinghouse Taxware international Implementing tax collection in the U.S.

Financial B2B Services (cont.) Payments (cont.) Other financial services Credit reporting firms New credit intermediaries broker credit risks Assurance firms guarantee quality Exchanges strike insurance deals E-credit services

Order Fulfillment, Logistics, and Supply Chain Services UPS Logistics Group Handles outbound logistics and delivery. This is only one part of order fulfillment. See the List of Services on page 328. Solutions for EC initiatives Tracking systems Product return systems Shipping solutions E-document exchange Customization EC software/providers E-services/partners

Marketing and Advertisement Advertising methods used by offline marketers Vertical trade show Ads in industry magazines Salespeople call on: Existing customers Potential buyers Digital advertisers Ad server network provider Electronic wholesalers

Affiliate Programs Affiliate programs (B2C services) Affiliates invited to put a banner of a vendor on their sites Consumer clicks on the banner and brings up that company’s EC site Commission paid to affiliate if customer makes a purchase 59 © Prentice Hall, 2002

Infomediaries Infomediary services Collect data about consumer behavior (clickstream) Analyze it Repackage it (Data Mining Technology) Sell the results As marketing and profiling information Purpose to increase customer loyalty Identify likely buyers Increased sales (Services, Market efforts) Reduced marketing costs

Other Marketing Services Three examples of other services: Digitalcement.com provides corporate marketing portals; builds stronger relationships with customers Vantagenet.com free tools that help increase traffic to a company’s Web site Businesstown.com has an online directory that enables small businesses to identify and evaluate service companies

Content Generation, Syndication, Delivery, and Management (cont.) Content-delivery networks (CDNs) Catalog content Content management options Do it yourself Let the suppliers do it Buy the content from an aggregator Subscribe to a vertical exchange Outsource to full-service Internet exchange

Content Generation, Syndication, Delivery, and Management (cont.) Content maximization and streaming services—companies provide media rich content to reach target audience Video clips Music Flash media Use content delivery solutions that do not cause “traffic jams” with slow download times (e.g., Akamai Corporation)

Directory Services & Search Engines B2Business.net B2BToday.com Communityb2b.com A2zofb2b.com I-stores.co.uk Websteronline.com Thomasregister.com Bocal.com B2b.yahoo.com Search engines and news aggregators Moreover.com Google.com Ientry.com Newsletters

E-Communities E-communities connect: E-communities Personnel Partners Customers Any combination of these three Service providers Design of exchange portals E-community service E-communities Chat rooms Bulletin boards Personalized Web pages B2B are basically communities of transactions Classified ads Job vacancies Announcements Industry news

Partner Relationship Management (PRM) In B2B environment the partners include: Suppliers Partners in joint ventures Service providers PRM—relies on: Trust Commitment Quality of services Continuity Strategy for e-service How much to invest in services What services to provide

Other B2B Services Trust services E-business rating sites Trust Trademark and domain names Digital photos Global business communities Client matching E-business rating sites Promotion programs Encryption sites Web research services Coupon-generating sites

Figure 8-8 The B2X Hub Source: Compiled from “B2B Exchanges,” Internet Exchange 2000 at Keenanvision.com, April 24, 2000.

Integration Integration in e-marketplaces and exchanges B2X hubs connect: All Internet business services Merchant services Exchange infrastructure Buying and selling Member enterprises Other B2X exchanges