1. Public B2B Exchanges and Portals
Chapter 7
Public B2B Exchanges
and Portals

2. 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
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3. 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
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4. 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
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5. ChemConnect: The World Chemical Exchange (cont.)
Trading Center consists of 3 trading areas
Marketplace for buyers
Marketplace for sellers
Commodity market platform
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6. 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
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7. 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.)
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8. 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
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9. 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
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10. 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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11. 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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12. B2B Electronic Exchanges (cont.)
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13. B2B Electronic Exchanges (cont.)
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14. 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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15. 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
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16. 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
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17. B2B Electronic Exchanges (cont.)
Functions of exchanges
Matching buyers and sellers
Facilitating transactions
Maintaining exchange policies and infrastructure
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18. B2B Electronic Exchanges (cont.)
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19. B2B Electronic Exchanges (cont.)
Ownership of exchanges
An industry giant
A neutral entrepreneur
The consortia (or “third-party” co-op)
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20. B2B Electronic Exchanges (cont.)
Revenue models
Transaction fees
Fee for service
Membership fees
Advertising fees
Other revenue sources
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21. 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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22. B2B Electronic Exchanges (cont.)
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23. B2B Electronic Exchanges (cont.)
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24. 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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25. B2B Portals (cont.)
Vortals: B2B portals that focus on a single industry or industry segment; “vertical portals”
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26. 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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27. 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 , alerts, etc
Revenue model—advertisement and fees for special
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28. 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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29. 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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30. Third Party (Trading) Exchanges (cont.)
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31. 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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32. Third Party (Trading) Exchanges (cont.)
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33. 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
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34. 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
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35. 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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36. 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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37. 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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38. 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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39. 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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40. 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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41. 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
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42. 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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43. 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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44. 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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45. 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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46. 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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47. 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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48. 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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49. 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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50. 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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51. 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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52. 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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53. 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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54. 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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55. 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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56. 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
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57. Asite (cont.)
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58. 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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59. 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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60. Managing Exchanges (cont.)
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61. 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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62. 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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63. 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
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64. 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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65. 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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66. 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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