Business to Business Electronic Commerce


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Business to Business Electronic Commerce by Aditya Ghoses

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Business to Business Electronic Commerce

  1. 1. Business-to-Business Electronic Commerce
  2. 2. B2B Electronic Commerce Business Business “ Buyer” “ Supplier” <ul><li>Commerce between businesses that is conducted electronically or in collaboration among business communities over the internet. </li></ul><ul><li>Buzz words: B2B exchanges, internet exchanges, electronic markets, e-marketplaces, e-hubs or e-procurement systems. </li></ul>B2B Market C ontent C ommunity C ommerce Transaction Process
  3. 3. The Basic Supply Chain B2C B2B R aw M aterials M anufacturing W holesalers R etails C onsumer Transportation & Logistics Transportation & Logistics Transportation & Logistics <ul><li>All activities associated with the flow and transformation of goods from raw materials to end users. </li></ul>
  4. 4. B2B vs . B2C E-Commerce R aw M aterials M anufacturing W holesalers R etails C onsumer Market Chains Government Transportation Communications Banks Intermediaries B2C E-commerce B2B E-commerce Business Business B2B Business Consumer B2C Suppliers Buyers
  5. 5. B2B EC Benefits <ul><li>Buyer Benefits </li></ul><ul><li>Reduced procurement process costs </li></ul><ul><li>Reduced inventory costs </li></ul><ul><li>More choices and better pricing. </li></ul><ul><li>Efficient logistics </li></ul><ul><li>Lower cycle times </li></ul><ul><li>Supplier Benefits </li></ul><ul><li>Lower sales and marketing cost </li></ul><ul><li>Reaching new customers: generating new revenue </li></ul><ul><li>Reduce the process costs of order management </li></ul><ul><li>Better customer support </li></ul>Overall : Increased market efficiency Greater market intelligence
  6. 6. E- Procurement <ul><li>Schlumberger: The world largest oil service company </li></ul><ul><li><Internal Portion>: Intranet: ERP </li></ul><ul><ul><li>Commerce One’s buyer site procurement software </li></ul></ul><ul><ul><li>Step 1: employee act as own purchasing agents by using a simple-to-use catalog. </li></ul></ul><ul><ul><li>Step 2: system automatically issues a requisition </li></ul></ul><ul><ul><li>Step 3: procurement department for approval purchase order </li></ul></ul><ul><li><External Portion>: Internet </li></ul><ul><ul><li>MarketSite: Internet marketplace for B2B transaction </li></ul></ul><ul><ul><li>Step 4: connect to hundred of suppliers by using a single-open system </li></ul></ul>
  7. 7. E- Procurement Benefits <ul><li>Benefits for Schlumberger </li></ul><ul><li>reduce training cost </li></ul><ul><li>gain discounts from vendors </li></ul><ul><li>reduce the transaction costs </li></ul><ul><li>reduce the amount of time people spent ordering and comparing prices. </li></ul><ul><li>The system is cheaper to operate then EDI. </li></ul><ul><li>It reduce overall procurement cycle </li></ul>
  8. 8. Why this topic is important <ul><li>The market is large and expanding </li></ul><ul><li>B2B is 80-90% of e-commerce </li></ul><ul><li>B2B e-commerce changes business processes (usually for the better!) </li></ul><ul><li>Automates of supply chains </li></ul><ul><li>It has changed the way we do business. </li></ul><ul><li>Great benefits for both buyer and supplier sides, as well as the overall economy. </li></ul>
  9. 9. Type of Electronic Markets <ul><li>Vertical (Industry) Markets </li></ul><ul><ul><li>industry-specific. </li></ul></ul><ul><li>Horizontal (Functional) Markets </li></ul><ul><ul><li>Functional in nature. </li></ul></ul><ul><ul><li>Facilitate the purchase and sale of goods and service used by a plethora of industries. </li></ul></ul><ul><li>Mega-exchange </li></ul><ul><ul><li>Groups of exchanges consolidated across industries or across horizontal or vertical segment. </li></ul></ul>Industry Focus
  10. 10. Type of Electronic Markets Industry Focus Database Magt. MRO Shipping Steel Food Auto Mining Mega-Exchange Vertical Market Horizontal Market
  11. 11. Global B2B <ul><li>Motor Industry </li></ul><ul><ul><li>GM, Ford & DaimlerChrysler join forces to form a $500 billion electronic marketplace with their suppliers . </li></ul></ul><ul><li>Food Industry </li></ul><ul><ul><li>50 food and beverage markets, including Kraft Foods, Proctor & Gamble, Coca-Cola, Nestle and Unilever announced a single industry-wide e-marketplace for conducting a portion of their $200 billion purchases of goods and services. </li></ul></ul><ul><li>Aidmatrix </li></ul><ul><ul><li>World’s largest aid agents, e.g. CARE, Red Cross & i2Technology </li></ul></ul><ul><li>Steel and Petroleum </li></ul><ul><ul><li>A startup B2B steel exchange: eSteel </li></ul></ul><ul><li>Many companies have employed B2B marketplace for years </li></ul><ul><ul><li>Federal Express, Cisco, Dell and General Electric. </li></ul></ul>
  12. 12. B2B in Australia <ul><li>corProcure Exchange </li></ul><ul><ul><li>14 companies e.g. AMP, Amcor, ANZ, Australia Post, BHP, Coles Myer, Coca-Cola Amatil, Westfarmers, Fosters, Qantas, Telestra, etc </li></ul></ul><ul><ul><li>$8 billion in annual buying. </li></ul></ul><ul><li>Cyberlynx Procurement Services </li></ul><ul><ul><li>6 companies form different Industries e.g. Commonwealth Bank, Woolworth, AAPT, Lion Nathan </li></ul></ul><ul><li>Telestra’s new e-marketplace </li></ul><ul><ul><li>Qantas, American Express, National Australia Bank, Citibank with </li></ul></ul><ul><li>BHP : & </li></ul><ul><li>Coles Myer : & Global Net-Xchange. </li></ul><ul><li> </li></ul><ul><ul><li>a free-form buying exchange targed at small business </li></ul></ul>
  13. 13. 3 Market Functions <ul><li>Aggregation </li></ul><ul><ul><li>Bring a large number of buyers and seller together </li></ul></ul><ul><ul><li>One-stop shopping </li></ul></ul><ul><ul><li>Fixed and pre-negotiated prices </li></ul></ul><ul><ul><li>Focus on content: online catalogues </li></ul></ul><ul><li>Matching </li></ul><ul><ul><li>Matching buyers and seller </li></ul></ul><ul><ul><li>Prices are determined at the moment of purchase: dynamic and real time </li></ul></ul><ul><ul><li>Dynamic trading process: auction, exchange, agents </li></ul></ul><ul><li>Facilitation </li></ul><ul><ul><li>The extend service: logistic and financial payment service </li></ul></ul>
  14. 14. Key Entities of B2B EC <ul><li>Selling company : marketing management </li></ul><ul><li>Buying company : procurement management </li></ul><ul><li>Electronic intermediary : an optional third party services provider </li></ul><ul><li>Delivere r: shipping for JIT delivery </li></ul><ul><li>Network platform : internet, intranet, extranet </li></ul><ul><li>Protocols & Communication : EDI, agents </li></ul><ul><li>Back-end info systems : Intranet, ERP systems, accounting, DBMS, etc. </li></ul>
  15. 15. Basic Models of B2B EC (1) <ul><li>Buyer-oriented Marketplace </li></ul>(Onwership Structure) Supplier 1 Supplier 3 Supplier 2 Buyer 1 Buyer 3 Buyer 2 Supplier-oriented Marketplace Supplier 1 Supplier 3 Supplier 2 Buyer 1 Buyer 3 Buyer 2 Intermediary-oriented Marketplace Buyer Third Party Supplier
  16. 16. Supplier-oriented Marketplace <ul><li>Manufacturer-driven electronic stores. </li></ul><ul><li>Same store as used by individual consumers and business corporations. (B2C, B2B) </li></ul><ul><li>May involve auctions run by the supplier. </li></ul>Buyer 1 Buyer 3 Buyer 2 Supplier-oriented Marketplace Supplier <ul><li>Examples </li></ul><ul><li>Cisco Connection Online: Networking equipment </li></ul><ul><li>Dell: PC and high-end servers . </li></ul>Supplier’s products catalog Customer’s order information
  17. 17. Buyer-oriented Marketplace <ul><li>Buyer opens a market on its server. </li></ul><ul><li>Invites potential suppliers to bid on the RFQ (Request for quotes) </li></ul><ul><li>The number of such sites increase: software agent is needed. </li></ul>Supplier 1 Supplier 3 Supplier 2 Buyer Buyer-oriented Marketplace <ul><li>Examples </li></ul><ul><li>GE Lightning's TPN (Trading Process Network) </li></ul>Buyer’s product catalog (RFQ) Suppliers’ bids information
  18. 18. Intermediary-oriented Marketplace <ul><li>3rd party sets up marketplace: matches buyers & sellers. </li></ul><ul><li>Similar to B2C mall: Bring buyers and suppliers(bidders) to one place </li></ul><ul><li>The corporate info. systems need tight coupling with intermediary electronic mall. </li></ul>Supplier 1 Supplier 3 Supplier 2 Buyer 1 Buyer 3 Buyer 2 Intermediary-oriented Marketplace Third Party <ul><li>Examples </li></ul><ul><li>Boeing’s PART </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>shared products catalogs Customer’s order information Supplier’s products information
  19. 19. Models of B2B EC (2) (Other Business Models) <ul><li>Virtual Corporation (B Networked 2 Bs) : </li></ul><ul><ul><li>It is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or services. </li></ul></ul><ul><ul><li>G oals: excellence, utilization, opportunism </li></ul></ul><ul><li>Networking (HQ 2 Subsidiaries) : procurement management </li></ul><ul><li>Online Service to Business : </li></ul><ul><ul><li>Travel services </li></ul></ul><ul><ul><li>Real estate </li></ul></ul><ul><ul><li>Electronic payments </li></ul></ul><ul><ul><li>E-autions </li></ul></ul>
  20. 20. Kaplan & Sawhney’s B2B Matrix What businesses buy Operating Supplies Manufacturing Inputs Systematic Sourcing Spot Sourcing How businesses buy? B2B e-hub can be classified into four categories Type of Product Type of Transaction Exchanges E-steel PaperExchange ChemConnect Yield Managers NTE Catalogue Hubs MRO Hubs Ariba
  21. 21. B2B EC: Market Mechanism <ul><li>Online Catalog </li></ul><ul><ul><li>Static pricing </li></ul></ul><ul><ul><li>Pre-determined </li></ul></ul><ul><li>Exchange </li></ul><ul><ul><li>Dynamic pricing </li></ul></ul><ul><ul><li>Bid-ask market, based on supply & demand </li></ul></ul><ul><li>Auction </li></ul><ul><ul><li>Dynamic pricing </li></ul></ul><ul><ul><li>Competitive bidding </li></ul></ul><ul><li>Barter </li></ul><ul><ul><li>Not applicable </li></ul></ul><ul><ul><li>exchange goods or services </li></ul></ul><ul><li>Agents </li></ul><ul><ul><li>Dynamic pricing </li></ul></ul><ul><ul><li>Negotiated price </li></ul></ul>
  22. 22. B2B EC : Online Catalog <ul><li>Buyer Benefits </li></ul><ul><ul><li>Reduce Procurement Process costs and inventory costs </li></ul></ul><ul><ul><li>Expand potential supplier base </li></ul></ul><ul><ul><li>Easy product comparison based on multiple dimensions (price, quality, service, available.) </li></ul></ul><ul><li>Seller Benefits </li></ul><ul><ul><li>Lower cost of sales </li></ul></ul><ul><ul><li>New sales channel </li></ul></ul><ul><ul><li>Lower process costs </li></ul></ul><ul><ul><li>Improve customer satisfaction </li></ul></ul><ul><li>Create value by aggregating suppliers & buyers </li></ul><ul><li>It works best in industries characterized by fragmented buyers and sellers who transact frequently for relatively small ticket items </li></ul><ul><li>Examples : Chemdex, MRO, SciQuest </li></ul>
  23. 23. <ul><li>Buyer Benefits </li></ul><ul><li>venue to fill immediate purchase needs </li></ul><ul><li>Seller Benefits </li></ul><ul><li>venue to offload excess capacity at market prices </li></ul><ul><li>Create value by temporal matching of supply & demand. Provide a spot market for commodities </li></ul><ul><li>A real-time, bid-ask matching process, market wide price determination is required. </li></ul>B2B EC : Online Exchange <ul><li>Examples : Paper Exchange, eSteel, Altra, Enermetrix, Arbinet. </li></ul>
  24. 24. B2B EC : Online Auctions <ul><li>Buyer Benefits </li></ul><ul><li>Lower prices through competitive seller bidding in reverse auction </li></ul><ul><li>Easier to find unique products & services </li></ul><ul><li>Broader selection </li></ul><ul><li>Seller Benefits </li></ul><ul><li>Increased inventory turn over </li></ul><ul><li>Sellers get more bidders for more competitive bidding & higher selling prices </li></ul><ul><li>Surplus inventory, used capital equipment, discontinued goods, perishable items, refurbished products are suitable for auction. </li></ul><ul><li>In traditional auctions : the competitive bidding process results in upward price movement. </li></ul><ul><li>The reverse auctions , a format in which sellers compete for a buyer’s offer to purchase, prices may move downward. </li></ul><ul><li>Examples : </li></ul><ul><li>FreeMarkets: (a reverse auction for manufactured input) </li></ul><ul><li>TradeOut: (Auctions for asset procurement & excess inventory) </li></ul><ul><li>PaperExchange: (auction for paper-related capital equipment.) </li></ul><ul><li> (sell-auction model for capital equipment). </li></ul>
  25. 25. <ul><li>Creates value by matching 2 parties that possess reciprocal assets within an asset class or across asset classes. </li></ul><ul><li>Benefits </li></ul><ul><li>Enable firms to barter excess supplies of components or products that would have otherwise been sold for low prices. </li></ul>B2B EC : Online Bartering <ul><li>Examples : FastParts Inc. and FairMarket Inc. operate thriving exchanges where computer electronics companies swap excess parts. </li></ul><ul><li>. </li></ul>
  26. 26. <ul><li>Shopbots : shopping agents that automatically search the Internet to obtain information about prices and other attributes of goods and services. </li></ul><ul><li>Pricebots : retailers also use it to check each other’s prices. </li></ul><ul><li>The Internet is moving toward an open, friction-free marketplace in which software agents will manage the buying and selling of goods </li></ul>B2B EC : Software Agents
  27. 27. <ul><li>Three types of communication network used for electronic commerce </li></ul>Type of Communication Network Distribution Channel Communication Stakeholder Relationship B2B Electronic Commerce Topology Relationship Extent Focus Organizational Extranet Internet Global Internal External Intranet Employee Information & Communication Business Partnership (1) Intranet (2) Extranet (3) Internet
  28. 28. Communication Networks: <ul><ul><li>Provide employees access to B2B activities </li></ul></ul><ul><ul><li>Provide access from B2B activities to the back-end applications. </li></ul></ul><ul><ul><li>Support knowledge management functions/communities of practice </li></ul></ul>Intranets
  29. 29. Communication Networks: <ul><li>Inter-organizational Information Systems (IOS) </li></ul><ul><li>Secure, private, web-based networks, providing suppliers, customers and other business partners access to the initiator’s corporate database, or facilitating collaborative tasks among a group of organizations. </li></ul><ul><li>Pre-selected business partners </li></ul><ul><li>Major concerns with security and trust </li></ul><ul><li>Indirect Connection EDI (Electronic Data Interchange): proprietary Value Added Networks (VANs) </li></ul><ul><li>Direct Connection EDI / WebEDI / Open EDI : Public Network Infrastructure </li></ul>Extranets
  30. 30. Communication Network: <ul><li>Electronic markets </li></ul><ul><li>Third-party intermediaries that match buyers and sellers within: </li></ul><ul><ul><li>A specific industry ( vertical ) </li></ul></ul><ul><ul><li>A specific business function ( horizontal ) </li></ul></ul><ul><ul><li>in a public marketplace </li></ul></ul>Internet-based Electronic Markets <ul><li>B2B EC Software </li></ul><ul><li>Designed to help companies build Web sites that host, catalog, marketplace and other commercial sales activities </li></ul><ul><li>Major software packages: </li></ul><ul><ul><li>Netscape: SellXpert & ECXpert </li></ul></ul><ul><ul><li>OpenMarket Transact </li></ul></ul><ul><ul><li>IBM’s Websphere </li></ul></ul><ul><ul><li>CommerceOne </li></ul></ul><ul><ul><li>Ariba </li></ul></ul>
  31. 31. Many Choices
  32. 32. Strategic design factors for B2B There are several issues a firm must consider before implementing an e-marketplace How is price determined for items being bought and sold? Price Mechanism How does the marketplace owner capture value form the marketplace? And from whom? Revenue Source How much is the initial investment? What are the recurring costs? Cost/Investment Who has strategic and tactical control over the rules and regulations of the marketplace? Control What marketplace access restrictions are in place? Access What form should the B2B market take? Market Mechanisms What does the marketplace offer those players Offering Who are the players in the marketplace? Audience
  33. 33. What it takes to win Relevant, value-added information. Content Superior GUI, searchability, configuration and transaction services. Ease of use Time, speed, security, etc. Other factors Open platform for easy participation and integration of all parties. Architecture Mission-critical solutions. Management Greater marketing, distribution & logistics. Partnership Achieve critical mass of buyers, suppliers, partners & distributors. First Mover Advantage Apply B2B model to specific industries and markets. Domain Expertise
  34. 34. Optimal Decisions <ul><li>Decisions have to integrate with the overall corporate strategy (from resource-based view and positioning school) </li></ul><ul><li>Attract larger number of participants </li></ul><ul><li>Provide value and not merely price </li></ul><ul><ul><li>Value added: delivery, quality, reputation, reliability, speed, information </li></ul></ul><ul><li>Supplier-customer relationship: sharing and trust </li></ul><ul><li>May depend on industry, firm type, products, business process, knowledge and technology, etc. </li></ul>