Overview Ch. 5  Describe the major types of B2B models  Describe the characteristics of the sell-side marketplace  Describe the sell-side intermediaries models  Describe the characteristics of the buy-side marketplace and e-procurement  Explain how forward and backward auctions work in B2B  Describe B2B aggregation and group purchasing models  Describe collaborative e-commerce  Describe infrastructure for B2B

Public B2B Exchanges

Learning Objectives  Define e-marketplaces and exchanges  List the various types of e-marketplaces  Describe B2B portals  Describe third-party exchanges  Distinguish between e-procurement and e-selling consortia  Describe the various ownership and revenue models  Describe the support mechanisms offered by exchanges  Describe networks of exchanges and exchange management  Describe the CSF of exchanges  Describe the major support services of B2B

An Overview 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

An Overview B2B Electronic Exchanges [2]  Market maker  the third-party that operates an exchange (and in many cases, also owns the exchange)  Companies that use exchanges are pleased with them and plan to increase the number of exchanges they participate  Traders expect to more than double the value of transactions that they do through the exchanges

Trading Communities: Information Flow and Access to Information

Classification of Exchanges  Systematic sourcing  purchasing done in long-term supplier-buyer relationships  Spot sourcing  unplanned purchases made as the need arises  Vertical exchange  an exchanges whose members are in one industry or industry segment  Horizontal exchange  an exchanges that handles materials traded in several different industries

Classification of Exchanges [2] Vertical Distributors Plastics.com Papersite.com Methods: Aggregation, fixed/negotiated prices Horizontal Distributors MRO.com Methods: Aggregation, fixed/negotiated prices Vertical Exchanges eSteel.com ChemConnect.com Methods: Matching, dynamic pricing Horizontal Exchanges EmployEase.com Methods: Matching, dynamic pricing Direct Indirect (MRO) Systematic Sourcing Spot Sourcing

Dynamic Pricing  A rapid movement of prices over time, and possibly across customers, as a result of supply and demand  Stock exchanges sometimes change minute by minute  Auction prices vary all the time

Ownership of Exchanges  An industry giant  A neutral entrepreneur  a third-party intermediary (ChemConnect.com)  The consortia (or co-op)  several industry players set up an exchange (Covisint.com)

Governance of Exchanges  Exchanges governed by guidelines and rules  How the exchange operates  What the requirements are to join the exchange  What fees are involved  What rules need to be followed  Security and privacy for documents  Contract terms between an exchange and buyers/sellers  Assurances that the exchange is fair

Organization of Exchanges  Membership  Generate revenue Transaction, Registration, Annual membership fees  Qualification process  Deposit may be required  Limits set on how much each member can trade  Site access and security  Information should be carefully protected— competitors congregate in the same exchange  Prevent illegal offers and bids  List of individuals who are authorized to represent the participating companies  Services  Buyer-seller registration, qualification, coordination, etc

Gain and Risks in B2B Exchanges For BuyersFor Sellers Potential Gains One stop shopping, huge varietyNew sales channel Search and comparison shoppingNo physical store is needed Order from any locationReduce ordering errors Make one order from several suppliers Reach new customers at little extra cost Unlimited, detailed informationPromote the business via the exchange Status review and easy reorderingCan go global more easily Fast delivery Potential Risks Unknown vendors; may not be reliable Loss of direct CRM Loss of customer service quality (inability to compare all services) Price wars Possible loss of customers to competitors

B2B Portals  Information portals for businesses  Vortals  B2B portals that focus on a single industry or industry segment “vertical portals”

Third-Party (Trading) Exchanges  Electronic intermediaries  Do not favor either sellers or buyers—neutral  Without a built-in constituency of sellers or buyers they have a problem attracting enough buyers and sellers to attain financial viability  Liquidity  the result of having a sufficient number of participants in the marketplace as well as a sufficient transaction volume

The Supplier Aggregation Model

The Buyer Aggregation Model Requests Responses

Suitability of Third-Party Exchanges  Fragmented markets  Markets that have large numbers of both buyers and sellers  Mainly suitable for MROs  Buyer-concentrated markets  Several large companies sell to a very large number of buyers  Seller-concentrated markets  Several large companies do most of the buying from a large number of suppliers

Consortium Trading Exchanges (CTE)  CTE (consortium)  An exchange formed and operated by a group of major companies to provide industry-wide transaction services  The major goal of CTEs  Provide industry-wide transaction services that support buying and selling  Types of CTEs:  Vertical, purchasing-oriented  Horizontal, purchasing-oriented  Vertical, selling-oriented  Horizontal, selling-oriented

Consortium Trading Exchanges (CTE) [2]  Purchasing-Oriented (Procurement) Consortia can be:  Vertical purchasing-oriented All the players are in the same industry Support buying and selling  Horizontal purchasing-oriented Owner-operators are large companies from different industries Improving the supply chain

Consortium Trading Exchanges (CTE) [3]  Selling-oriented consortia  Vertical exchanges  Thousands of potential buyers within a particular industry  Legal challenges for B2B consortia  Exchanges introduce a level of collaboration among both competitors and business partners  Antitrust and other competition laws must be considered

Critical Success Factors of Consortia  Size of industry  Ability to drive user adoption  Elasticity—measure of incremental spending by buyers as a result of savings generated  Standardization of commodity-like products  Management of intensive information flow  Smoothing inefficiencies in supply chain

Dynamic Trading: Auctions and Matching  Dynamic trading  Exchange trading that occurs in situations when prices are being determined by supply and demand (dynamic pricing)  Matching  Market makers conduct matching supply and demand (e.g., stocks)  More complex than auctions because they match: Prices Quantities Times Locations

Dynamic Trading: Auctions and Matching [2]  Auctions  Private trading rooms—members conduct auctions at the exchange  Auction services may be one of the activities  Exchange may be fully dedicated to auctions  Can conduct many-to-many public auctions

Building and Integrating Marketplaces & Exchanges  Integration  Between 3rd-party exchange and back office systems of participants  Across multiple, incompatible exchanges  External communications  Web/client access  Data exchange  Direct application integration  Shared process

Building and Integrating Marketplaces & Exchanges [2]  Process and information coordination—how to coordinate external communications with internal information systems External process Internal process Data transformationException handling  System and information management—involves management of: SoftwareHardware Information components

Managing Exchanges  Revenue models  Transaction fees  Fee for service  Membership fees  Advertisement fees  Networks of exchanges  “First mover” primary objective is the acquisition of buyers and sellers  Integration with other companies or exchanges  Some exchanges are beginning to integrate in order to better serve their customers

Managing Exchanges [2]  Centralized management  One market builder builds and operate several exchanges Manages all the exchanges’ catalogs, auction places, discussion forums Centralizes: accounting, finance, human resources, IT services  Third-party vendors providing logistic services and payment systems are more efficient when supplying services for “families ” of exchanges

Critical Success Factors  Early liquidity  Liquidity refers to volume of business conducted  Business’s chance of survival is best when liquidity is achieved early  Right owners  Partner with companies that can bring liquidity to the exchange  Best owner may be intermediary that can push both buyers and sellers

Critical Success Factors [2]  Right governance  Good management and fair /effective operations and rules are critical  Governance provides: The rules for the exchange Minimized conflicts Decision making support  Good management induces necessary liquidity

Critical Success Factors [3]  Openness  Exchanges must be open to all from: Organizational point of view Technical point of view  Open standards require: Commitment by all involved Universal agreement on the standards  Using the wrong standards can hurt the exchange

Critical Success Factors [4]  Full range of services  Participants are attracted by an exchange that helps cut costs  Exchanges team up with banks, logistic services and IT companies to help  Importance of domain expertise  Market makers need an in-depth understanding of: The industry Business processes inherent in the industry Knowledge of industry structure Government and policy stipulations

Critical Success Factors [5]  Targeting inefficient industry processes  Contribute to increased costs and time delays  Vertical exchanges can add value  Targeting right industries  Large base of transactions  Many fragmented buyers and sellers  Difficulties bringing together buyers and sellers  High vendor and product search/comparison costs  Strong pressure to cut expenses

Critical Success Factors [6]  Brand building is critical  Increase switching costs by adding features and functionality  Invest in: Gaining brand awareness Attracting businesses to exchange Customer retention

Critical Success Factors [7]  Exploiting economics of scope  Value-added services make exchange compelling Industry news Expert advice Detailed product specification sheets  Adjacent services Banks and financial information providers Identification supported by sophisticated digital certificate architecture

Critical Success Factors [8]  Garner diverse and multiple revenue streams  Software licensing  Advertising  Sponsorship  Critical mass of users will garner more value-added services  Auction services  Financial services  Business reporting  Data mining services

Critical Success Factors [9]  Blending content, community, and commerce  Content and community perspective—stimulate traffic  EC transaction perspective—creates higher level of customer “stickiness”  Managing channel conflict  Hostile phase as buyers interact directly with sellers (disintermediation of supply chain)  Short-term revenues impacted by backlash from existing fulfillment channels result in price erosion affecting medium-term profitability

Communication Networks and Extranets for B2B  The Internet  A public, global communications network that provides direct connectivity to anyone over a local area network (LAN) via an Internet service provider (ISP) or directly via an ISP  Intranets  A corporate LAN or wide area network (WAN) that uses Internet technology and is secured behind a company’s firewalls  Extranets  A network that uses a virtual private network (VPN) to link intranets in different locations over the Internet; an “extended intranet”  Protected environment of an extranet allows partners to securely collaborate and share information  Virtual private network (VPN)  A network that creates tunnels of secured data flows, using cryptography and authorization algorithms, to provide secure transport of private communications over the public Internet

Implementation Issues  Problems with exchanges  Problems with public exchanges High transaction fees Sharing information Unclear cost savings Recruiting suppliers Too many exchanges Difficult to coordinate supply chain process  Private exchanges: e-marketplaces that are owned and operated by an industry giant or a consortium  Problems with private exchanges  Lack of trust  Liquidity is questionable

Summary  Exchanges are e-marketplaces that provide a trading platform for conducting business among many buyers, sellers and other business partners  E-marketplaces include B2B portals, third-party trading exchanges, consortium trading exchanges and dynamic trading floors  B2B portals are gateways to B2B community- related information  A Consortium Trading Exchange (CTE) is an exchange formed and operated by a group of major companies

Exercise  Read article in the book and answer the questions:  Page  Page  Give an example of a benefit of a SCM system. What would it improve?  Describe the bullwhip effect and give an example!  Describe some of the difficulties of collaborative planning!