1. Copyright © 2010 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc. Slide 9-1 ELC 200 Day 22

2. Agenda Questions? Guidelines for final paper posted  Due Dec 14 @ 10:00 AM  20% of final grade Assignment 7 corrected  5 A’s, 7 B’s, 1 C and 2 non-submits Assignment 8 posted  ELC 200 assignment 8.pdf ELC 200 assignment 8.pdf Optional Assignment 9 Posted Course Evaluations Finish discussion on Social Networks and Online Communities Begin discussion B2B eCommerce

3. Rest of Semester Nov 29  Finish Chap 11  Start Chap 12 Dec 2  Assignment 8 Due  Finish Chap 12 Dec 6  Chap 12 or Free Day Dec 9  Quiz 3  Optional assignment 9 Due Drop lowest assignment grade Dec 14 @ 10 AM  Ecommerce initiative papers and presentations due. Copyright © 2010 Pearson Education, Inc. Slide 9-3

4. Copyright © 2010 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc. Slide 11-4 Chapter 11 Social Networks, Auctions, and Portals

5. Copyright © 2010 Pearson Education, Inc. Benefits of Auctions Liquidity Price discovery Price transparency Market efficiency Lower transaction costs Consumer aggregation Network effects Market maker benefits: no inventory or fulfillment activities Slide 11-5

6. Copyright © 2010 Pearson Education, Inc. Risks and Costs of Auctions for Consumers and Businesses Delayed consumption costs Monitoring costs  Possible solutions include: Fixed pricing Watch lists Proxy bidding Equipment costs Trust risks  Possible solution—rating systems Fulfillment costs Slide 11-6

7. Copyright © 2010 Pearson Education, Inc. Internet Auction Basics Different from traditional auctions  Last much longer (usually a week)  Variable number of bidders who come and go from auction arena Market power and bias in dynamically priced markets  Neutral: number of buyers and sellers is few or equal  Seller bias: few sellers and many buyers  Buyer bias: many sellers and few buyers Slide 11-7

8. Copyright © 2010 Pearson Education, Inc. Bias in Dynamically Priced Markets Slide 11-8 Figure 11.4, Page 735

9. Copyright © 2010 Pearson Education, Inc. Internet Auction Basics Price allocation rules  Uniform pricing rule: multiple winners who all pay the same price  Discriminatory pricing rule: winners pay different amount depending on what they bid Public vs. private information  Prices bid may be kept secret Bid rigging  Open markets Price matching Slide 11-9

10. Copyright © 2010 Pearson Education, Inc. Types of Auctions English auctions:  Single item up for sale to single seller  Highest bidder wins Traditional Dutch auction:  Uses a clock that displays starting price  Clock ticks down price until buyer stops it  Fixed perishable quantity, intent is to clear the market Dutch Internet auction:  Public ascending price, multiple units  Final price is lowest successful bid, which sets price for all higher bidders  Intent is to clear the market Slide 11-10

11. Copyright © 2010 Pearson Education, Inc. Types of Auctions Name your own price auctions  Users specify what they are willing to pay for goods or services and multiple providers bid for their business  Prices do not descend and are fixed Group buying auctions (demand aggregators)  Group buying of products at dynamically adjusted discount prices based on high volume purchases  Two principles 1. Sellers more likely to offer discounts to buyers purchasing in volume 2. Buyers increase their purchases as prices fall Slide 11-11

12. Copyright © 2010 Pearson Education, Inc. Types of Auctions Professional service auctions  Example: Elance.com Auction aggregators (mega auctions)  Use Web crawlers to search thousands of Web auction sites and accumulate information on products, bids, auction duration, etc.  Unlicensed aggregators opposed by eBay  Most have been closed down by legal actions Slide 11-12

13. Copyright © 2010 Pearson Education, Inc.Slide 11-13 Table 11.7, Page 742

14. Copyright © 2010 Pearson Education, Inc. Seller and Consumer Behavior at Auctions Seller profit: arrival rate, auction length, and number of units at auction Auction prices not necessarily the lowest Unintended results of participating in auctions:  Winner’s regret  Seller’s lament  Loser’s lament Consumer trust an important motivating factor in auctions Slide 11-14

15. Copyright © 2010 Pearson Education, Inc. Auction Profits Slide 11-15 SOURCE: Vakrat and Seidmann, 1998.Figure 11.5, Page 744

16. Copyright © 2010 Pearson Education, Inc. When Auction Markets Fail: Fraud and Abuse in Auctions Markets fail to produce socially desirable outcomes in four situations:  Information asymmetry, monopoly power, public goods, and externalities. Auction markets prone to fraud  Most common: failure to deliver, failure to pay In 2009, 25% of Internet fraud complaints concern online auctions Slide 11-16

17. Copyright © 2010 Pearson Education, Inc. Portals Most frequently visited sites on Web Original portals were search engines As search sites, attracted huge audiences Today provide:  Navigation of the Web  Commerce  Content (own and others’) Compete on reach and unique visitors Enterprise portals  Help employees find important organizational content Slide 11-17

18. Copyright © 2010 Pearson Education, Inc. Top 5 Portal/Search Engines in the United States Slide 11-18 SOURCE: comScore, 2009; author’s estimates.Figure 11.5, Page 755

19. Copyright © 2010 Pearson Education, Inc. Types of Portals General purpose portals:  Attempt to attract very large general audience  Retain audience by providing in-depth vertical content channels  E.g., Yahoo, MSN Vertical market portals:  Attempt to attract highly focused, loyal audiences with specific interest in: Community (affinity group); e.g., iVillage.com Focused content; e.g., ESPN.com Slide 11-19

20. Copyright © 2010 Pearson Education, Inc. Two General Types of Portals: General Purpose and Vertical Market Portals Figure 11.6, Page 756 Slide 11-20

21. Copyright © 2010 Pearson Education, Inc. Portal Business Models ISP services (AOL, MSN)  Provide Web access, e-mail for monthly fee General advertising revenue  Charge for impressions delivered Tenancy deals  Fixed charge for number of impressions, exclusive partnerships, “sole providers” Commissions on sales  Sales at site by independent providers Subscription fees  Charging for premium content Slide 11-21

22. Copyright © 2010 Pearson Education, Inc. Revenue per Customer and Market Focus Figure 11.7, Page 757 Slide 11-22

23. Copyright © 2010 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc. Slide 12-23 Chapter 12 B2B E-commerce: Supply Chain Management and Collaborative Commerce

24. Copyright © 2010 Pearson Education, Inc. Volkswagen Builds Its B2B Net Marketplace Class Discussion Why didn’t Volkswagen want to use a more open or public electronic exchange for its parts supply? Why didn’t it join an industry consortium such as Covisint? What kinds of services are provided by VWGroupSupply? What is eCAP and who benefits from its use? Do you think suppliers are disadvantaged by this B2B marketplace? Slide 12-24

25. Copyright © 2010 Pearson Education, Inc. Trends in B2B E-commerce Firms more comfortable with Internet security, payments, helping expand use of B2B channels Growing realization that most important benefits are not low costs of materials, but gains in supply chain efficiency, better spend management, improved business process Decline of independent Net marketplaces Rapid growth in collaborative commerce B2B applications based on private networks Continued consolidation in Net marketplace and software vendor markets Slide 12-25

26. Copyright © 2010 Pearson Education, Inc. Evolution of the Use of Technology Platforms in B2B Commerce Figure 12.1, Page 773 Slide 12-26

27. Copyright © 2010 Pearson Education, Inc. Defining B2B Commerce Before Internet:  B2B transactions called trade or procurement process Total inter-firm trade:  Total flow of value among firms B2B commerce:  All types of computer-enabled inter-firm trade B2B e-commerce:  The portion of B2B commerce enabled by the Internet Slide 12-27

28. Copyright © 2010 Pearson Education, Inc. Slide 9-28

29. Copyright © 2010 Pearson Education, Inc. Growth of B2B Commerce 2002–2013 Slide 12-29 SOURCES: U.S. Census Bureau, 2009a, b; authors’ estimates.Figure 12.2, Page 776

30. Copyright © 2010 Pearson Education, Inc. The Growth of B2B E-commerce 2009–2013: B2B e-commerce will grow from 30% to 35% of total inter-firm trade Electronic marketplaces will not be dominant form of B2B e-commerce Private industrial networks continue to play dominant role in B2B Non-EDI B2B e-commerce most rapidly growing type of e-commerce EDI still large but will decline over time Slide 12-30

31. Copyright © 2010 Pearson Education, Inc. Industry Forecasts Not all industries similarly affected by B2B e-commerce Not all industries would benefit equally Factors influencing move to e-commerce  Significant utilization of EDI  Large investments in IT and Internet infrastructure E.g., aerospace and defense, computer, and industrial equipment industries  Market concentrated on purchasing and/or selling E.g., energy, chemical industries Slide 12-31

32. Copyright © 2010 Pearson Education, Inc. Potential Benefits of B2B E-commerce Lower administrative costs Lower search costs for buyers Reduced inventory costs  Increasing competition among suppliers (increasing price transparency)  Reducing inventory carried Lower transaction costs:  Eliminating paperwork  Automating parts of procurement process Slide 12-32

33. Copyright © 2010 Pearson Education, Inc. Potential Benefits Increased production flexibility by ensuring just-in-time parts delivery Improved quality of products by increasing cooperation among buyers and sellers Decreased product cycle time by sharing of designs and production schedules Increased opportunities for collaborating with suppliers and distributors Greater price transparency Slide 12-33

34. Copyright © 2010 Pearson Education, Inc. The Procurement Process and the Supply Chain Procurement process:  The way firms purchase materials they need to make products Supply chain:  Firms that purchase goods, their suppliers, and their suppliers’ suppliers, and relationships and processes involved Steps in procurement process:  Deciding who to buy from and what to pay  Completing transaction Slide 12-34

35. Copyright © 2010 Pearson Education, Inc. The Procurement Process Slide 12-35 Figure 12.3, Page 778

36. Copyright © 2010 Pearson Education, Inc. Types of Procurement Firms purchase two types of goods 1. Direct goods: integrally involved in production process 2. Indirect goods: all goods not directly involved in production process (MRO goods) Firms use two methods to purchase 1. Contract purchasing: Involves long-term written agreements to purchase specified products, with agreed-upon terms and quality 2. Spot purchasing: Involves purchase of goods based on immediate needs in larger marketplaces that involve many suppliers Slide 12-36

37. Copyright © 2010 Pearson Education, Inc. Types of Procurement Procurement is highly information intensive and labor intensive—3.3 million U.S. workers Use of Internet can simplify process and reduce search, research, negotiating costs Multi-tier supply chain  Complex series of transactions between firm and thousands of suppliers Slide 12-37

38. Copyright © 2010 Pearson Education, Inc. The Multi-Tier Supply Chain Slide 12-38 Figure 12.4, Page 780

39. Copyright © 2010 Pearson Education, Inc. The Role of Existing Legacy Computer Systems Legacy computer systems  Generally older mainframe and minicomputer systems used to manage key business processes within firm  MRP systems (materials requirements planning) Enable firms to predict, track, and manage parts of complex manufactured goods  ERP systems (enterprise resource planning) More sophisticated MRP systems that include human resources and financial components Slide 12-39

40. Copyright © 2010 Pearson Education, Inc. Trends in Supply Chain Management and Collaborative Commerce Supply chain management (SCM):  Wide variety of activities that firms and industries use to coordinate key players in their procurement process Major developments in SCM  Supply chain simplification  Electronic data interchange  Supply chain management systems  Collaborative commerce Slide 12-40

41. Copyright © 2010 Pearson Education, Inc. Supply Chain Simplification Essential for just-in-time production models Typically achieved by:  Working with strategic group of suppliers to reduce product and administrative costs, while improving quality  Purchasing under long-term contracts that contain specified quality, cost, and timing goals May involve  Joint product development and design  Integration of computer systems  Tight coupling Slide 12-41

42. Copyright © 2010 Pearson Education, Inc. Electronic Data Interchange (EDI) Broadly defined communications protocol for exchanging documents among computers Stage 1: 1970s–1980s  Document automation Stage 2: Early 1990s  Document elimination Stage 3: Mid-1990s  Move toward continuous replenishment/access model Today:  EDI provides for exchange of critical business information between computer applications supporting wide variety of business processes Slide 12-42

43. Copyright © 2010 Pearson Education, Inc. The Evolution of EDI as a B2B Medium Slide 12-43 Figure 12.5, Page 782

44. Copyright © 2010 Pearson Education, Inc. Supply Chain Management Systems Continuously link activities of buying, making, and moving products from suppliers to purchasing firms Integrates demand side of business equation by including order entry system in the process With SCM system and continuous replenishment, inventory is eliminated and production begins only when order is received Hewlett Packard’s SCM system: elapsed time from order entry to shipping PC is 48 hours. Slide 12-44

45. Copyright © 2010 Pearson Education, Inc. Supply Chain Management Systems Figure 12.6, Page 784 Slide 12-45

46. Copyright © 2010 Pearson Education, Inc. Insight on Technology RFID Autoidentification: Making Your Supply Chain Visible Class Discussion Why is RFID an improvement over bar codes? How does RFID work? Why is Wal-Mart supporting RFID? What impact will widespread adoption of RFID have on Internet B2B commerce? Slide 12-46

47. Copyright © 2010 Pearson Education, Inc. Collaborative Commerce Use of digital technologies enabling organizations to collaboratively design, develop, build, and manage products through life cycles Direct extension of SCM systems and supply chain simplification Involves move from transaction focus to relationship focus among supply chain participants Unlike EDI, more like an interactive teleconference among members of supply chain Example: Group Dekko Slide 12-47

48. Copyright © 2010 Pearson Education, Inc. Elements of a Collaborative Commerce System Figure 12.7, Page 788 Slide 12-48

49. Copyright © 2010 Pearson Education, Inc. Two Main Types of Internet-Based B2B Commerce 1. Net marketplaces:  Bring together potentially thousands of sellers and buyers in single digital marketplace operated over Internet  Transaction-based  Support many-to-many as well as one-to-many relationships 2. Private industrial networks:  Bring together small number of strategic business partner firms that collaborate to develop highly efficient supply chains  Relationship-based  Support many-to-one and many-to-few relationships  Largest form of B2B e-commerce Slide 12-49

50. Copyright © 2010 Pearson Education, Inc. Two Main Types of Internet-Based B2B Commerce Figure 12.8, Page 789 Slide 12-50

51. Copyright © 2010 Pearson Education, Inc. Net Marketplaces Various ways to classify Net marketplaces:  Pricing mechanism, nature of market served, ownership By business functionality  What businesses buy (direct vs. indirect goods)  How business buy (spot purchasing vs. long-term sourcing)  Four main types 1. E-distributors 2. E-procurement networks 3. Exchanges 4. Industry consortia Slide 12-51

52. Copyright © 2010 Pearson Education, Inc. Pure Types of Net Marketplaces Figure 12.9, Page 791 Slide 12-52

53. Copyright © 2010 Pearson Education, Inc. Table 12.2, Page 791 Slide 12-53

54. Copyright © 2010 Pearson Education, Inc. E-distributors Most common type of Net marketplace Electronic catalogs representing products of thousands of direct manufacturers Typically independently owned intermediaries Offer industrial customers single source to purchase indirect goods on spot basis Typically horizontal—serve many different industries with products from many different suppliers Usually fixed price—discounts for large customers Example: W.W. Grainger Slide 12-54

55. Copyright © 2010 Pearson Education, Inc. E-distributors Figure 12.10, Page 792 Slide 12-55

56. Copyright © 2010 Pearson Education, Inc. E-procurement Net Marketplaces Independently owned intermediaries Connect hundreds of suppliers of indirect goods Firms pay fees to join market Typically for long-term contractual purchasing of indirect goods Revenues from transaction fees, licensing consultation services and software, network fees Offer value chain management (VCM) services  Automation of entire procurement process on buyer side, automation of selling business processes on seller side Many-to-many market Example: Ariba Slide 12-56

57. Copyright © 2010 Pearson Education, Inc. E-procurement Net Marketplaces Figure 12.11, Page 793 Slide 12-57

58. Copyright © 2010 Pearson Education, Inc. Exchanges Independently owned online marketplaces Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environment Typically vertical markets—spot purchasing requirements of large firms in single industry Charge commission fees on transaction Variety of pricing models used  Online negotiation, auction, RFQ, fixed Tend to be buyer-biased Suppliers disadvantaged by competition Many have failed due to low liquidity Slide 12-58

59. Copyright © 2010 Pearson Education, Inc. Exchanges Figure 12.12, Page 795 Slide 12-59

60. Copyright © 2010 Pearson Education, Inc. Industry Consortia Industry-owned vertical markets Enable buyers to purchase direct inputs from limited set of invited participants Emphasize long-term contractual purchasing, stable relationships, creation of data standards Ultimate objective:  Unification of supply chains within entire industries through common network and computing platform Make money from transaction and subscription fees Offer many different pricing mechanisms  Auctions, fixed prices, RFQs, negotiated Can force suppliers to use consortia’s networks Slide 12-60

61. Copyright © 2010 Pearson Education, Inc. Industry Consortia Figure 12.13, Page 797 Slide 12-61

62. Copyright © 2010 Pearson Education, Inc. The Long-Term Dynamics of Net Marketplaces Pure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement process Consortia and exchanges beginning to work together in selected markets E-distributors joining large e-procurement systems and industry consortia as suppliers Movement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goods Slide 12-62

63. Copyright © 2010 Pearson Education, Inc. Net Marketplace Trends Figure 12.14, Page 800 Slide 12-63

64. Copyright © 2010 Pearson Education, Inc. Insight on Society Are Net Marketplaces Anti-Competitive Cartels? Class Discussion How can Net marketplaces and private industrial networks reduce competition in the marketplace, drive up prices, and reduce variety in markets? What is a monopsony, and how do Net marketplaces encourage the development of monopsonies? How can Net marketplaces be used to exclude competitors from low priced markets? Why do Net marketplaces inevitably lead to a single marketplace owner or provider? Slide 12-64

65. Copyright © 2010 Pearson Education, Inc. Private Industrial Networks Private trading exchanges (PTXs) Web-enabled networks for coordination of trans- organizational business processes (collaborative commerce)  Direct descendant of EDI; closely tied to ERP systems  Typically involve manufacturing and support industries  Typically center around single, very large manufacturing firm that sponsors network Range in scope from single firm to entire industry Example: Procter & Gamble Slide 12-65

66. Copyright © 2010 Pearson Education, Inc. Procter & Gamble’s Private Industrial Network Figure 12.15, Page 803 Slide 12-66

67. Copyright © 2010 Pearson Education, Inc. Characteristics of Private Industrial Networks Objectives include:  Efficient purchasing and selling business processes industry-wide  Industry-wide resource planning to supplement enterprise-wide resource planning  Increasing supply chain visibility  Closer buyer–supplier relationships  Operating on global scale  Reducing industry risk by preventing imbalances of supply and demand Focus on continuous business process coordination Typically focus on single sponsoring company that “owns” the network Slide 12-67

68. Copyright © 2010 Pearson Education, Inc. Insight on Business Wal-Mart Develops a Private Industrial Network Class Discussion What is Wal-Mart’s Retail Link system and how has it changed since the early 1990s? Why is Wal-Mart still using EDI-based systems? Why won’t Wal-Mart join in an industry-backed system? Could Wal-Mart’s plan to allow suppliers to directly sell online to consumers be a threat to Amazon? Slide 12-68

69. Copyright © 2010 Pearson Education, Inc. Private Industrial Networks and Collaborative Commerce Forms of collaboration:  Collaborative resource planning, forecasting, and replenishment (CPFR): Working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities to ensure that retail and wholesale shelf space is replenished with just the right amount of goods  Demand chain visibility  Marketing coordination and product design Can ensure products fulfill claims of marketing Feedback enables closed loop marketing Slide 12-69

70. Copyright © 2010 Pearson Education, Inc. Pieces of the Collaborative Commerce Puzzle Figure 12.16, Page 807 Slide 12-70

71. Copyright © 2010 Pearson Education, Inc. Implementation Barriers Concerns about sharing of proprietary, sensitive data Integrating private industrial networks into existing ERP systems and EDI networks difficult, expensive Requires change in mindset and behavior of employees and suppliers  All participants lose some independence Slide 12-71

72. Copyright © 2010 Pearson Education, Inc. Industry-Wide Private Industrial Networks Successful single firm networks adopted by entire industry P&G system sold to IBM, re-sold to entire consumer products industry in the United States ISYNC: manufacturers in alcohol and beverage, automotive, entertainment, grocery, healthcare, office supplies industries Agentrics: founded by world’s largest retailers; focuses on auctions, services for retail industry Slide 12-72

73. Copyright © 2010 Pearson Education, Inc. An Industry-Wide Private Industrial Network Figure 12.17, Page 809 Slide 12-73

74. Copyright © 2010 Pearson Education, Inc. Long-Term Dynamics of Private Industrial Networks As large firms become more accustomed to working closely with both supply chain partners and distributors, they will seek to push the boundaries of their networks to extend across the industry as a whole, to other industries, and to elaborate new roles for themselves and others. Slide 12-74

75. Copyright © 2010 Pearson Education, Inc. Slide 12-75 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall