Chapter 5 B2B E-Commerce: Selling and Buying in Private E-Markets

Chapter 5 B2B E-Commerce: Selling and Buying in Private E-Markets
Jason C.H. Chen, Ph.D. Professor of MIS Graduate School of Business Gonzaga University Spokane, WA USA

Learning Objectives Describe the B2B field.
Describe the major types of B2B models. Discuss the characteristics of the sell-side marketplace, including auctions. Describe the sell-side intermediary models. Describe the characteristics of the buy-side marketplace and e-procurement. Explain how reverse auctions work in B2B.

Learning Objectives Describe B2B aggregation and group purchasing models. Describe other procurement methods. Explain how B2B administrative tasks can be automated. Describe infrastructure and standards requirements for B2B. Describe Web EDI, XML, and Web Services.

5.1 Concepts, Characteristics, and Models of B2B EC
business-to-business e-commerce (B2B EC) Transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B Key business drivers for B2B are: The availability of a secure broadband Internet platform, Private and public B2B marketplaces, the need for collaborations between suppliers and buyers, and technologies for intra- and inter-organizational integration. The dollar value of B2B comprises at least 85% of the total transaction value of e-C.

Focus on e-Business Applications
Knowledge Management/Business Intelligence E-Commerce E-Customer Relationship Procurement Network Trading Network E-Channel Management Businesses & Consumers (CRM) Businesses (SRM) M:1 M:N 1:N E-Portal Management E-Business, E-Services SCM/ERP/Legacy Appls

Exhibit 5.1 Generations of B2B E-Commerce
(Key Drivers for B2B E-Commerce) Non-IT Application Management Collaboration With Suppliers And Buyer Integration Internal/External Business Process Management Collaborative Commerce e-Government Personalize And Customize Mobile Commerce Web Services e-CRM e-Marketplaces Exchange Online Ordering B2C, B2B Actions Intelligent Systems Expert Sales System e-Learning Publish And Promote Business values Multichannel 1st Generation 1998 2nd Generation 1999 3rd Generation 2000 4th Generation 2001 5th (current) Generation 2002 and Beyond

Concepts, Characteristics, and Models of B2B EC (cont.)
B2B characteristics Parties to the transaction Online intermediary: An online third party that brokers a transaction online between a buyer and a seller; can be virtual or click-and-mortar Types of transactions Spot buying: The purchase of goods and services as they are needed, usually at prevailing market prices Strategic (systematic) sourcing: Purchases involving long-term contracts that are usually based on private negotiations between sellers and buyers Parties to the transaction -- conducted directly between a buyer and a seller, or -- online intermediary (indirectly, a third party) Spot buying – more economically on the public exchanges Strategic buying – more effectively and efficiently thru direct buyer-seller negotiations.

Basic B2B transaction types -side (1:M) One seller to many buyers -side (M:1) One buyer from many sellers (M:M) Many sellers to many buyers commerce(M and Connected) and supply chain improvement Communication and sharing of information, design, and planning among business partners Sell Buy Exchanges Collaborative

Concepts, Characteristics, and Models of B2B EC

Collaborative commerce (C-commerce) Communication, design, planning, and information sharing among business partners To qualify as C-commerce, the activities that are shared must represent far more than just financial transactions (e.g., design, manufacture, or management)

The Basic Types of B2B E-Marketplaces and Services One-to-many and many-to-one: private e-marketplaces company-centric EC E-commerce that focuses on a single company’s buying needs (many-to-one, or buy-side) or selling needs (one-to-many, or sell-side) private e-marketplaces Markets in which the individual sell-side or buy-side company has complete control over participation in the selling or buying transaction - Intermediaries Both are ‘company-centric’ marketplaces. They normally do not need an ‘Intermediary’ and when do they need it? Auction Aggregating small buyers (GPO)

Many-to-many: exchanges exchanges (trading communities or trading exchanges) Many-to-many e-marketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other public e-marketplaces Third-party exchanges that are open to all interested parties (sellers and buyers) Supply chain activities and collaborative commerce B2B2C

B2B Characteristics Parties to the transaction: sellers, buyers, and intermediaries online intermediary An online third party that brokers a transaction online between a buyer and a seller; may be virtual or click-and-mortar

Types of materials traded direct materials Materials used in the production of a product (e.g., steel in a car or paper in a book) indirect materials Materials used to support production (e.g., office supplies or light bulbs) MRO (maintenance, repair, and operation) Indirect materials used in activities that support production – nonproduction materials. Direct Indirect & MRO (a special case of Indirect)  nonproduction materials

Direction of trade marketplaces: Markets that deal with one industry or industry segment (e.g., electronics, cars, steel, chemicals) marketplaces: Markets that concentrate on a service, material, or a product that is used in all types of industries (e.g., office supplies, PCs) Vertical Horizontal

SUPPLY CHAIN RELATIONSHIPS IN B2B The supply chain process consists of a number of interrelated subprocesses and roles Acquisition of materials from suppliers Processing of a product or service Packaging it and moving it to distributors and retailers The eventual purchase of a product by the end consumer A B2B private e-marketplace provides a company with high supply chain power and high capabilities for online interactions B2B can make supply chains more efficient and effective or it can change the supply chain completely, eliminating one or more intermediaries. B2B apps serve as supply chain enablers that offer distinct competitive advantages (HIGH supply chain power and high capabilities capabilities). SCM also encompasses the coordination of order generation, order taking, and order fulfillment and distribution.

Virtual Service Industries in B2B Travel and hospitality services Real estate Financial services Online stock trading Online financing Other online services

Benefits of B2B Eliminates paper and reduces administrative costs. Lowers search costs and time for buyers Increases productivity of employees dealing with buying and/or selling Reduces errors and improves quality of services. Reduces inventory levels and costs Increases production flexibility, permitting just-in-time delivery Facilitates mass customization Expedites cycle time Disintermediation - a phenomenon eliminating the distributor or the retailer that may be a benefit to the seller and the buyer. Increases opportunities for collaboration

The Limitations of B2B Channel conflict Operation of public exchanges

5.2 One-to-Many: Sell-Side E-Marketplaces
A Web-based marketplace in which one company sells to many business buyers from e-catalogs or auctions, frequently over an extranet B2B Sellers Customer Service Three major direct sales methods: selling from electronic catalogs selling via forward auctions (GM case) one-to-one selling The seller can be: a manufacturer selling to a wholesaler, to a retailer, or to business (Intel, Cisco, Dell) a distributor selling to wholesalers, to retailers or to businesses The major differences between B2B and B2C are in the process. (e.g., different order-fulfillment process) while their architecture of the model are similar.

One-to-Many: Sell-Side E-Marketplaces
One seller

Direct Sales from Catalogs Configuration and customization Benefits and limitations of direct sales from catalogs The benefits of direct sales are similar to that of B2C Limitations How to find a buyer Channel conflicts with their existing distribution systems The cost to the customers can be high By using the Internet and automatic-response software agents (autoresponders), GE has reduced the cost of handling calls from $5 per call when done by phone to $0.20 per call.

Direct Sales: The Example of Cisco Systems Customer service Online ordering by customers Tracking order status Benefits Reduced operating costs for order taking Improved quality Reduced technical support staff cost Reduced software distribution costs Faster service

One-to-Many: Sell-Side Marketplaces (cont.)
Major benefits of direct sales are: Lower order-processing costs and less paperwork A faster ordering cycle Fewer errors in ordering and product configuration Lower search costs of products for buyers Lower search costs of finding buyers for sellers Sellers can advertise and communicate online Lower logistics costs Ability to offer different catalogs and prices to different customers

5.3 Selling via Intermediaries and Distributors
Manufacturers frequently use intermediaries to distribute their products to a large number of buyers, known as distributors The intermediaries usually buy products from many vendors and aggregate them into one catalog from which they sell Now, many of these distributors also are selling online

5.4 Selling via Auctions Using Auctions on the Sell Side
Revenue generation Cost savings Increased “stickiness” Member acquisition and retention

Selling via Auctions Auctioning from the Company’s Own Site
Why should a company pay a commission to an intermediary if the intermediary cannot provide the company with added value If a company decides to auction from its own site, it will have to pay for infrastructure and operate and maintain the auction site

Selling via Auctions Using Intermediaries in Auctions
An intermediary may conduct private auctions for a seller, either from the intermediary’s or the seller’s site A company may choose to conduct auctions in a public marketplace, using a third-party hosting company Benefits No additional resources are required No hiring costs or opportunity costs associated with the redeployment of corporate resources Offer fast time-to-market Billing and collection efforts, are handled by the intermediary rather than the company

Sell-Side Cases I (Cisco)
Direct sales: Cisco Systems World’s leading producer of routers, switches, and network interconnection services Cisco’s portal began with technical support for customers and developed into one of the world’s largest direct sales EC sites

Sell-Side Cases (cont.)
Customer service Applications offered: software downloads defect tracking technical advice 85% of customer service inquiries and 95% of software updates are delivered online Online ordering by customers Provides online pricing and configuration tools to customers 98% are now placed through Cisco Connection Online (CCO) Order status

Sell-Side Cases I (Cisco) - Summary
Direct Sales: The Example of Cisco Systems Customer service Online ordering by customers Tracking order status Benefits Reduced operating costs for order taking Improved quality Reduced technical support staff cost Reduced software distribution costs Faster service

Sell-Side Case II - Boeing
B2B intermediary: Boeing’s parts marketplace World’s largest maker of airplanes for commercial and military customers Major goal of Boeing’s intermediary parts market, called PART is supporting customers’ maintenance needs as a customer service Online strategy is to provide a single point of online access through which airlines (buyers) and the maintenance and parts providers (suppliers) can access data about the parts they need Began using traditional EDI

1996, Boeing introduced its PART page on the Internet Customers around the world could check parts availability and pricing order parts track order status Less than a year later, about 50 percent of Boeing’s customers used PART for parts orders and customer service inquiries

Boeing OnLine Data (BOLD) enables mechanics and technicians at the airport to access the technical manuals they need for repairs These manuals are now available in digital form, and mechanics and technicians can access them via wireline or wireless devices

“Horizontal” breadth of goods and services
Examples of Different B2B E-Commerce Sites Used by Organizational Buyers (and Sellers) All sellers and buyers at all levels Collaboration Hub Best search tool sites Exchanges “Vertical” depth across firms at different levels of production & distribution process Communities Procurement Hub Catalog site Best search tool sites Summary Overview (P;Exhibit7-7, p.201) Production and marketing work together to create utility: the power to satisfy human needs. There are five kinds of economic utility. Key Issues Form utility: provided when someone produces something tangible. Task utility: provided when someone performs a task for someone else. Time utility: having the product available when the customer wants it. Place utility: having the product available where the customer wants it. Discussion Question: Can you think of examples of businesses that excel in providing time and place utility? Possession utility: obtaining a good or service and the right to use or consume it. One of two levels (a seller to a buyer) One business One specific industry Many industries “Horizontal” breadth of goods and services

Striving for Competitive Advantage
level: Industry & Competitive Analysis Competitive Forces Model Competitive Strategy level Value-Chain Analysis Firm Business Two views that can help G.M. align IS strategy with business strategy (These views provide a G.M. with varied perspectives from which to identify strategic opportunities to apply the firm’s information resources) Porter’s five forces model -- look at the major influences on a firm’s competitive environment -- Information resources should be directed strategically to alter the competitive forces to benefit the firm’s position in the industry. Porter’s value chain model --assess the internal operations of the organization and partners in its supply chain --Information resources should be directed at altering value-creating or value-supporting activities of the firm. Wiseman’s theory of strategic thrusts Defense or offense perspective

PORTER’S FIVE COMPETITIVE FORCES MODEL
Threats NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES Switching cost Access to distribution channels Economies of scale Redefine products and services Improve price/performance Selection of suppler Threat of backward integration Buyer selection Switching costs Differentiation Cost-effectiveness Market access Differentiation of product or service THE FIRM INDUSTRY COMPETITORS According to Porter, there are five competitive forces in any industry, and the attractiveness of the industry depends on the strength of each force (Porter, 1985). Under the perspective of market structure, Porter’s competitive forces model (Porter, 1985; Applegate et al., 1999) has been broadly adopted as the underpinning for investigating the effect of information technology on the relationships between suppliers, customers, and other potential threats. Contemporary strategic planning frameworks -- 1) too narrow and pessimistic -- 2) they are based on projections of market share and market growth COMPETITIVE FORCES that SHAPE strategy -- depends on the type of the industry The ability to manage complexity and responsiveness has become a powerful source of competitive advantage. Internal Forces: 1.customer focus, 2.communication, 3.core competencies, 4.complexity, 5.Quality Due to characteristics of the instability of the markets in e-Commerce, Downes and Mui (1998) show that there are three forces that must be added to Porter’s five forces model: globalization, digitalization, and deregulation. digitalization – the improvement and cost reductions in digital technology have had significant impact in business for many years now. The Internet has simply accelerated much of what was already happening and spread it into other industries across the world (esp. the information-based industries). Deregulation and liberalization – it opened up new opportunities for many firms, and recent years have seen an increase in the number of related diversifications. (e.g., UK companies in the energy sector have branched out into related markets such as other forms of energy or telecommunications, making use of their physical distribution networks). Globalization – an international level of many industries and liberalization of many markets (e.g., Eastern Europe) have opened up new foreign markets for Western firms while bringing Western firms into competition with multinationals based in other countries., Such international competition is likely to accelerate following political moves, such as the signing of the General Agreement on Trade and Tariffs by the leading industrial nations which promise to reduce barriers to international trade. Concept of “glocalization” where organizations must be a part of the local environmental setting. That is to think global and act according to local customs to survive and thrive in local conditions. SUPPLIERS CUSTOMERS Bargaining power N Dr. Chen, The Trends of the Information Systems Technology TM -37

The Five Forces Model and IS
The Five Forces Model provides a way to think about how information resources can create competitive advantage. Using Porter’s Model, General Managers can: Identify key sources of competition they face. Recognize uses of information resources to enhance their competitive position against competitive threats Consider likely changes in competitive threats over time The changing forces drive both the business strategy and IS strategy, and this model provides a way to RE-think about how information resources can create competitive advantage. Value chain -- focus on activities Yet, in applying the value chain, competitive forces may be affected to the extent that the proposed technology may add value to suppliers, customers, or even competitors and potential new entrants. --assess the internal operations of the organization and partners in its supply chain --Information resources should be directed at altering value-creating or value-supporting activities of the firm N

Porter’s Five Forces Model and Value Chain
The value chain model highlights specific activities in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position. Two views that can help G.M. align IS strategy with business strategy (These views provide a G.M. with varied perspectives from which to identify strategic opportunities to apply the firm’s information resources) Porter’s five forces model -- look at the major influences on a firm’s competitive environment -- Information resources should be directed strategically to alter the competitive forces to benefit the firm’s position in the industry. Porter’s value chain model --assess the internal operations of the organization and partners in its supply chain --Information resources should be directed at altering value-creating or value-supporting activities of the firm. Wiseman’s theory of strategic thrusts Defense or offense perspective

Figure 1.6 (2.4) Process View of the Firm: The Value Chain
Competitive Advantage (Value) A company’s value activities fall into nine generic categories. -- Primary activities are those involved in the physical creation of the product, its marketing and delivery to buyers, and its support and servicing after sale. -- Support activities provide the inputs and infrastructure that allow the primary activities to take place. IT can profoundly affect one or more of these activities - - sometimes simply by improving effectiveness, - sometimes by fundamentally changing the activity, and - sometimes by altering the relationship between activities. In addition, the actions of one firm can significantly affect the value chain of key customers and suppliers. --assess the internal operations of the organization and partners in its supply chain --Information resources should be directed at altering value-creating or value-supporting activities of the firm Operations: Boeing -- Lean Manufacturing After-Sale Service - maintenance technology Devices identify potential problems before the customer notices a difficulty and enable the service representative to fix the elevator before it breaks down, reducing repair costs and increasing customer satisfaction. Corporate Infrastructure - on-line links to integrate remote locations (27% sales growth) MANAGEMENT CONTROL - more sophisticated reward systems software (sales commission on each product sold by its sales force; thus (a) maximum incentive: sales force (b) NO incentive: ensure the customer continued to be satisfied with the services coordination of activities - coordination of activities airline, truck, railroad: optimizing schedule, fueling, cargoes by using , groupware, videoconferencing: a networked “workflow” system. Technology Development support for research and development CHINA(SPARK MIS) Procurement market knowledge (purchase price, exert pressure on --> supplier N

Using Information Resources to Alter the Value Chain
The Value Chain model suggest that competition can come from two sources: Lowering the cost to perform an activity and Adding value to a product or service so buyers will be willing to pay more. Lowering costs only achieves competitive advantage if the firm possesses information on the competitors’ cost structure Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made? When to … Lowering the cost to perform an activity -- Even though reducing isolated costs can improve profits temporarily, it does not provide a clear competitive advantage unless a firm can lower its costs below a competitors’. Doing so enables the firm to lower its prices so as to grow its market share. Adding value to a product or service (DIFFERENTIATED) -- deep understanding of how a customer obtains the product or service (p.44) --- CRM And WHEN to deliver products/services to customers? N

Interconnecting relationships between organizations
The Value System: Interconnecting relationships between organizations The direction of flow of the goods is usually referred to as “downstream.” Def. The value system is a collection of firm value chains connected through a business relationship. The value chain for a company in a particular industry is embedded in a larger stream of activities that we term the “value system”. The value system includes the value chains of suppliers, who provide inputs (such as raw materials, components, and purchased services) to the company’s value chain. [Purpose] The company’s product often passes through its channels’ value chains on its way to the ultimate buyer. Finally, the product becomes a purchased input to the value chains of its buyers, who use it to perform one or more buyer activities. A company can create competitive advantage by optimizing or coordinating these links to the outside. The company, suppliers, and channels can all benefit through better recognition and exploitation of such linkages. Every value activity has both a physical and an information-processing component. The physical component includes all the physical tasks required to perform the activity. The information-processing component encompasses the steps required to capture, manipulate, and channel the data necessary to perform the activity. Every value activity creates and uses information of some kind. E.g., logistics activity (p.152) and service activity Value system analysis (p.218) 1) Name your price, 2) Find the best price, 3) affiliate marketing Value chain analysis can be extended beyond the company to include other firms in the industry, such as suppliers and customers, in a “value system” analysis. E.g. revenue streams for websites can also be added potentially profitable opportunities in support services, infrastructure provision, security software and venture capital. The value system analysis is particularly useful in e-business as it can highlight one of the key strategic opportunities, restructuring an existing industry. “Value innovation” meaning that strategy is driven by what is valued the customer without being constrained by existing industry rules. Since one of the most striking features of competition in e-business is that new entrants have often been able with limited resources to undermine existing competition in an industry through the use of new business models. Downstream value Upstream value Firm value N

Business Strategies and its Competitive Advantage Innovation Alliance
Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Cost Leadership Differentiation Alliance Innovation Growth Competitive Scope Particular Segment only (Narrow Target) Three generic strategies Cost leadership differentiation (internal differentiation [e.g., stock option, bonus, salary increase] is good for building performance culture within the organization) From PRODUCT differentiation to SERVICE differentiation (BLUE OCEAN) Focus (focused strategy is to develop a new market niches for specialized products/services where a target area better than its competitors) means an appropriate position/market a. cost or b. differentiation PRODUCT differentiation  SERVICE differentiation  INNOVATION (BLUE OCEAN STRATEGY) Core concept of this strategy are two basic principles: 1. Competitive advantage is believed to be the GOAL of any strategy 2. It is to be believed that a firm must define the TYPE of CA it seeks to attain and the scope within which it will be attained. From “all things to all people” (a below-average performance) to a focus on core competencies. Cost Focus Differentiation Focus Knowledge-based economy Industrial economy Competitive Mechanism N Dr. Chen, The Trends of the Information Systems Technology TM -43

BREAK-1 EC Application Case 5.4: How the State of Pennsylvania Sells Surplus Equipment (p.233)

5.5 One-from-Many: Buy-Side Marketplaces and E-Procurement
Buy-side e-marketplace: A corporate-based acquisition site that uses reverse auctions, negotiations, group purchasing, or any other e-procurement method Procurement methods Buy from manufacturers, wholesalers, or retailers from their catalogs, and possibly by negotiation Buy from the catalog of an intermediary that aggregates sellers’ catalogs or buy at industrial malls Buy from an internal buyer’s catalog in which company-approved vendors’ catalogs, including agreed upon prices, are aggregated

One-from-Many: Buy-Side Marketplaces and E-Procurement (cont.)
Inefficiencies in traditional procurement management Procurement management: The coordination of all the activities relating to purchasing goods and services needed to accomplish the mission of an organization Maverick buying: Unplanned purchases of items needed quickly, often at non-pre-negotiated, higher prices e-procurement: The electronic acquisition of goods and services for organizations

One-from-Many: Buy-Side E-Marketplaces and E-Procurement
Six Main Types of E-Procurement (see p.234) e-sourcing e-tendering e-reverse auctioning e-informing Web-based ERP (electronic resource planning) e-MRO (maintenance, repair and operating) Identifying new suppliers for a specific category of purchasing requirements using Internet tech. Sending requests for information and prices to suppliers and receiving the suppliers’ responses from Internet tech.

Pre-Purchase Activities After-Purchase Activities
Exhibit The E-Procurement Process: A Buyer’s View Search for Vendors and Products E-catalogs, brochures, Conventions, exhibits, Telephone calls, visits. Quality Vendors Which vendors we can do business with? Research firms, financial stability, credit history. Select a Market Mechanism Private, public, auctions, exchange. Tendering system has a special process. Compare and Negotiate Price, financing , delivery, Quality, etc. Make a Purchase (Individual or committee) Have a contract. Arrange payment. Initiate a Purchase Order (PO) Electronic form or rigger ready order. Arrange a pick-up or Receive shipment Check shipping document Make Payment Approve payment Arrange money transfer. One-from-Many: Buy-Side Marketplaces and E-Procurement Pre-Purchase Activities After-Purchase Activities

B2B e-Procurement Processes
Seller/Supplier e-Marketplaces Buyer/Wholesale Supplier Trading Platform Buye/r Wholesale Supplier Buyer/Wholesale Trading Platform B2B e-Procurement Process System Order mgt. Finance mgt. Shipping mgt. Customer mgt. e-catalogue inquiry/ negotiation quick ordering account mgt. 供應鏈 Supply Chain e-procurement process system 需求鏈 Demand Chain Material Flow Information Flow Money Flow

Benefits of E-Procurement
The Goals and Benefits of E-Procurement Increasing the productivity of purchasing agents Lowering purchase prices Improving information flow and management Minimizing the purchases made from non-contract vendors Improving the payment process and savings due to expedited payments Establishing efficient, collaborative supplier relations Ensuring delivery on time, every time Slashing order-fulfillment and processing times by leveraging automation

Implementing E-Procurement
Implementing e-procurement—major e-procurement implementation issues Fitting e-procurement into the company EC strategy Reviewing and changing the procurement process itself Providing interfaces between e-procurement with integrated enterprisewide information systems such as ERP or supply chain management (SCM) Coordinating the buyer’s information system with that of the sellers; sellers have many potential buyers Consolidating the number of regular suppliers to a minimum and assuring integration with their information systems, and if possible with their business processes

e-sourcing The process and tools that electronically enable any activity in the sourcing process, such as quotation/tender submission and response, e-auctions, online negotiations, and spending analyses

5.6 Buy-Side E-Marketplaces: Reverse Auctions
One of the major methods of e-procurement is through reverse auctions (tendering or bidding model) The reverse auction method is the most common model for large MRO purchases as it provides considerable savings request for quote (RFQ): The “invitation” to participate in a tendering (bidding) system

Posting Bids Invitation
Exhibit 5.6 The Reverse Auction Process (Sellers Bid) Posting Bids Invitation (Buyers) (Bidders/ Sellers) (Buyers) Requirement Bid Invitation Enterprise Web Bid Restricted Evaluation Supplier 1 Supplier 2 Supplier 3 Contract & Purchasing Department Rejection Acceptance (Bidders/ Sellers) Evaluation of Bids (Evaluators) (Sellers)

Reverse Auctions A Pioneer: General Electric’s TPN
Procurement revolution at GE—Trading Process Network (TPN) Post With this online system, the sourcing department received the requisitions electronically from its internal customers (i.e., in the different departments) and sent off a bid package to suppliers around the world via the Internet The system automatically pulled the correct drawings and attached them to the electronic requisition forms

Reverse Auctions A Pioneer: General Electric’s TPN (cont.)
Benefits of TPN labor involved in the procurement process declined by 30% cut by 50% staff involved in the procurement process and redeployed those workers into other jobs reduced the number of days to complete a contract by half invoices were automatically reconciled with purchase orders procurement departments around the world were able to share information about their best suppliers

Reverse Auctions A Pioneer: General Electric’s TPN (cont.)
GXS Express Marketplaces is an expanded system that makes it a public posting place for other buyers Suppliers gain instant access to global buyers Dramatically improve the productivity of their bidding and sales activities Increased sales volume Expanded market reach and ability to find new buyers Lower administration costs Shorter requisition cycle time Improved sales staff productivity Streamlined bidding process

5.7 Other E-Procurement Methods
Internal procurement marketplace - The aggregated catalogs of all approved suppliers combined into a single internal electronic catalog - Benefits of internal marketplaces corporate buyers quickly find what they want, check availability and delivery times, and complete an electronic requisition form reduce number of regular suppliers easy financial controls Desktop purchasing Direct purchasing from internal marketplaces without the approval of supervisors and without the intervention of a procurement department

Other E-Procurement Methods (cont.)
Group purchasing: The aggregation of orders from several buyers into volume purchases so that better prices can be negotiated Internal aggregation—companywide orders are aggregated using the Web and replenished automatically This system only works for very large firms External aggregation—provide SMEs with better prices, selection, and services by aggregating demand online and then either negotiating with suppliers or conducting reverse auctions

G P O Group Purchasing Organization Process B S u u p y p e l r i e r
[Stage1-b] [Stage1-a] Forecast Demand RFQ G P O B u y e r RFQ Bid Negotiate Contract Response Confirm (Price OK) S Place Orders u Process Orders p Shipping Orders p Receiving Orders . . . l Invoicing Payment RFQ i VPTM e [Stage3] [Stage2] r Shipping / Receiving Orders Returns / … … S Refund Process Shipping / Receiving Orders e Invoice l Payment l Returns e r [Stage4] Refund Process VPTM : Vender Performance Tracking & Management

Other E-procurement Methods (cont.)

Other E-Procurement Methods
Buying from E-Distributors Purchasing Direct Goods Electronic Bartering bartering exchange An intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants Buying in Exchanges and Industrial Malls

5.8 Automating B2B Tasks Contract Management
Contract-management software can: Reduce contract negotiation time and efforts Facilitate inter- and intracompany contract analysis and development Provide for proactive contract compliance management Enable enterprisewide standardization of contracts Improve understanding of contract-related risks Provide a more efficient approval process

Automating B2B Tasks Spend Management
Tools and features may be found in spend-management software include: A data warehouse repository designed to manage data from multiple data sources Data management of contracts, supplier catalogs, and product content Data management of pricing Detailed standard and ad-hoc purchasing activity analysis and report tools Updates, notifications, and alerts regarding purchasing

Automating B2B Tasks Sourcing Management and Negotiation
Tools and features may be found in sourcing management software include: Bid comparison, including exports of detailed bid data User management functions that eliminate data redundancy, simplify data management, and reduce risk to data integrity Weighted scoring of parameters to calculate the total value offered by suppliers Total merchandise purchased cost model with bids winners selection and ranking Reverse auctions and sealed bids, with a full set of features such as proxy bids and bid-time extensions Negotiation support tools

5.9 Infrastructure, Integration, and Software Agents In B2B EC
Infrastructure for B2B electronic data interchange (EDI) The electronic transfer of specially formatted standard business documents, such as bills, orders, and confirmations, sent between business partners value-added networks (VANs) Private, third-party managed networks that add communications services and security to existing common carriers; used to implement traditional EDI systems Internet-based (Web) EDI EDI that runs on the Internet and is widely accessible to most companies, including SMEs

Infrastructure, Integration, and Software Agents In B2B EC
Integration with the existing internal infrastructure and applications Integration with business partners

The Role of Standards, Especially XML, in B2B Integration XML (eXtensible Markup Language) Standard (and its variants) used to improve compatibility between the disparate systems of business partners by defining the meaning of data in business documents

XBRL A version of XML for capturing financial information throughout a business’s information processes. XBRL makes it possible to format reports that need to be distributed to shareholders, SOX regulators, banks, and other parties. The goal of XBRL is to make the analysis and exchange of corporate information more reliable (trustworthy) and easier to facilitate Web Services An architecture enabling assembly of distributed applications from software services and tying them together

Managerial Issues Can we justify the cost of B2B?
Which vendor(s) should we select? Which B2B model(s) should we use? Should we restructure our procurement system? What are the ethical issues in B2B? Will there be massive disintermediation? How can trust and loyalty be cultivated in B2B? How is mobile B2B done?

BREAK-2 EC Application Case 5.6: Reverse Auctions Become a Diplomatic Tool (p.241)

Chapter 5 B2B E-Commerce: Selling and Buying in Private E-Markets

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