Business-to-Business Electronic Commerce

B2B Electronic Commerce Business Business “ Buyer” “ Supplier” Commerce between businesses that is conducted electronically or in collaboration among business communities over the internet. Buzz words: B2B exchanges, internet exchanges, electronic markets, e-marketplaces, e-hubs or e-procurement systems. B2B Market C ontent C ommunity C ommerce Transaction Process

Commerce between businesses that is conducted electronically or in collaboration among business communities over the internet.

Buzz words: B2B exchanges, internet exchanges, electronic markets, e-marketplaces, e-hubs or e-procurement systems.

The Basic Supply Chain B2C B2B R aw M aterials M anufacturing W holesalers R etails C onsumer Transportation & Logistics Transportation & Logistics Transportation & Logistics All activities associated with the flow and transformation of goods from raw materials to end users.

All activities associated with the flow and transformation of goods from raw materials to end users.

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

B2B EC Benefits Buyer Benefits Reduced procurement process costs Reduced inventory costs More choices and better pricing. Efficient logistics Lower cycle times Supplier Benefits Lower sales and marketing cost Reaching new customers: generating new revenue Reduce the process costs of order management Better customer support Overall : Increased market efficiency Greater market intelligence

Buyer Benefits

Reduced procurement process costs

Reduced inventory costs

More choices and better pricing.

Efficient logistics

Lower cycle times

Supplier Benefits

Lower sales and marketing cost

Reaching new customers: generating new revenue

Reduce the process costs of order management

Better customer support

E- Procurement Schlumberger: The world largest oil service company <Internal Portion>: Intranet: ERP Commerce One’s buyer site procurement software Step 1: employee act as own purchasing agents by using a simple-to-use catalog. Step 2: system automatically issues a requisition Step 3: procurement department for approval purchase order <External Portion>: Internet MarketSite: Internet marketplace for B2B transaction Step 4: connect to hundred of suppliers by using a single-open system

Schlumberger: The world largest oil service company

<Internal Portion>: Intranet: ERP

Commerce One’s buyer site procurement software

Step 1: employee act as own purchasing agents by using a simple-to-use catalog.

Step 2: system automatically issues a requisition

Step 3: procurement department for approval purchase order

<External Portion>: Internet

MarketSite: Internet marketplace for B2B transaction

Step 4: connect to hundred of suppliers by using a single-open system

E- Procurement Benefits Benefits for Schlumberger reduce training cost gain discounts from vendors reduce the transaction costs reduce the amount of time people spent ordering and comparing prices. The system is cheaper to operate then EDI. It reduce overall procurement cycle

Benefits for Schlumberger

reduce training cost

gain discounts from vendors

reduce the transaction costs

reduce the amount of time people spent ordering and comparing prices.

The system is cheaper to operate then EDI.

It reduce overall procurement cycle

Why this topic is important The market is large and expanding B2B is 80-90% of e-commerce B2B e-commerce changes business processes (usually for the better!) Automates of supply chains It has changed the way we do business. Great benefits for both buyer and supplier sides, as well as the overall economy.

The market is large and expanding

B2B is 80-90% of e-commerce

B2B e-commerce changes business processes (usually for the better!)

Automates of supply chains

It has changed the way we do business.

Great benefits for both buyer and supplier sides, as well as the overall economy.

Type of Electronic Markets Vertical (Industry) Markets industry-specific. Horizontal (Functional) Markets Functional in nature. Facilitate the purchase and sale of goods and service used by a plethora of industries. Mega-exchange Groups of exchanges consolidated across industries or across horizontal or vertical segment. Industry Focus

Vertical (Industry) Markets

industry-specific.

Horizontal (Functional) Markets

Functional in nature.

Facilitate the purchase and sale of goods and service used by a plethora of industries.

Mega-exchange

Groups of exchanges consolidated across industries or across horizontal or vertical segment.

Type of Electronic Markets Industry Focus Database Magt. MRO Shipping Steel Food Auto Mining Mega-Exchange Vertical Market Horizontal Market

Global B2B Motor Industry GM, Ford & DaimlerChrysler join forces to form a $500 billion electronic marketplace with their suppliers . Food Industry 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. Aidmatrix World’s largest aid agents, e.g. CARE, Red Cross & i2Technology Steel and Petroleum A startup B2B steel exchange: eSteel Many companies have employed B2B marketplace for years Federal Express, Cisco, Dell and General Electric.

Motor Industry

GM, Ford & DaimlerChrysler join forces to form a $500 billion electronic marketplace with their suppliers .

Food Industry

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.

Aidmatrix

World’s largest aid agents, e.g. CARE, Red Cross & i2Technology

Steel and Petroleum

A startup B2B steel exchange: eSteel

Many companies have employed B2B marketplace for years

Federal Express, Cisco, Dell and General Electric.

B2B in Australia corProcure Exchange 14 companies e.g. AMP, Amcor, ANZ, Australia Post, BHP, Coles Myer, Coca-Cola Amatil, Westfarmers, Fosters, Qantas, Telestra, etc $8 billion in annual buying. Cyberlynx Procurement Services 6 companies form different Industries e.g. Commonwealth Bank, Woolworth, AAPT, Lion Nathan Telestra’s new e-marketplace Qantas, American Express, National Australia Bank, Citibank with SAP.com BHP : corProcure.com & eSteel.com Coles Myer : corProcure.com & Global Net-Xchange. B2bBuyer.com.au a free-form buying exchange targed at small business

corProcure Exchange

14 companies e.g. AMP, Amcor, ANZ, Australia Post, BHP, Coles Myer, Coca-Cola Amatil, Westfarmers, Fosters, Qantas, Telestra, etc

$8 billion in annual buying.

Cyberlynx Procurement Services

6 companies form different Industries e.g. Commonwealth Bank, Woolworth, AAPT, Lion Nathan

Telestra’s new e-marketplace

Qantas, American Express, National Australia Bank, Citibank with SAP.com

BHP : corProcure.com & eSteel.com

Coles Myer : corProcure.com & Global Net-Xchange.

B2bBuyer.com.au

a free-form buying exchange targed at small business

3 Market Functions Aggregation Bring a large number of buyers and seller together One-stop shopping Fixed and pre-negotiated prices Focus on content: online catalogues Matching Matching buyers and seller Prices are determined at the moment of purchase: dynamic and real time Dynamic trading process: auction, exchange, agents Facilitation The extend service: logistic and financial payment service

Aggregation

Bring a large number of buyers and seller together

One-stop shopping

Fixed and pre-negotiated prices

Focus on content: online catalogues

Matching

Matching buyers and seller

Prices are determined at the moment of purchase: dynamic and real time

Dynamic trading process: auction, exchange, agents

Facilitation

The extend service: logistic and financial payment service

Key Entities of B2B EC Selling company : marketing management Buying company : procurement management Electronic intermediary : an optional third party services provider Delivere r: shipping for JIT delivery Network platform : internet, intranet, extranet Protocols & Communication : EDI, agents Back-end info systems : Intranet, ERP systems, accounting, DBMS, etc.

Selling company : marketing management

Buying company : procurement management

Electronic intermediary : an optional third party services provider

Delivere r: shipping for JIT delivery

Network platform : internet, intranet, extranet

Protocols & Communication : EDI, agents

Back-end info systems : Intranet, ERP systems, accounting, DBMS, etc.

Basic Models of B2B EC (1) Buyer-oriented Marketplace (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

Buyer-oriented Marketplace

Supplier-oriented Marketplace Manufacturer-driven electronic stores. Same store as used by individual consumers and business corporations. (B2C, B2B) May involve auctions run by the supplier. Buyer 1 Buyer 3 Buyer 2 Supplier-oriented Marketplace Supplier Examples Cisco Connection Online: Networking equipment Dell: PC and high-end servers . Supplier’s products catalog Customer’s order information

Manufacturer-driven electronic stores.

Same store as used by individual consumers and business corporations. (B2C, B2B)

May involve auctions run by the supplier.

Examples

Cisco Connection Online: Networking equipment

Dell: PC and high-end servers .

Buyer-oriented Marketplace Buyer opens a market on its server. Invites potential suppliers to bid on the RFQ (Request for quotes) The number of such sites increase: software agent is needed. Supplier 1 Supplier 3 Supplier 2 Buyer Buyer-oriented Marketplace Examples GE Lightning's TPN (Trading Process Network) tpn.geis.com Buyer’s product catalog (RFQ) Suppliers’ bids information

Buyer opens a market on its server.

Invites potential suppliers to bid on the RFQ (Request for quotes)

The number of such sites increase: software agent is needed.

Examples

GE Lightning's TPN (Trading Process Network) tpn.geis.com

Intermediary-oriented Marketplace 3rd party sets up marketplace: matches buyers & sellers. Similar to B2C mall: Bring buyers and suppliers(bidders) to one place The corporate info. systems need tight coupling with intermediary electronic mall. Supplier 1 Supplier 3 Supplier 2 Buyer 1 Buyer 3 Buyer 2 Intermediary-oriented Marketplace Third Party Examples Boeing’s PART Industry.net procure.net Manufacturing.net shared products catalogs Customer’s order information Supplier’s products information

3rd party sets up marketplace: matches buyers & sellers.

Similar to B2C mall: Bring buyers and suppliers(bidders) to one place

The corporate info. systems need tight coupling with intermediary electronic mall.

Examples

Boeing’s PART

Industry.net

procure.net

Manufacturing.net

Models of B2B EC (2) (Other Business Models) Virtual Corporation (B Networked 2 Bs) : It is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or services. G oals: excellence, utilization, opportunism Networking (HQ 2 Subsidiaries) : procurement management Online Service to Business : Travel services Real estate Electronic payments E-autions

Virtual Corporation (B Networked 2 Bs) :

It is an organization composed of several business partners sharing costs and resources for the purpose of producing a product or services.

G oals: excellence, utilization, opportunism

Networking (HQ 2 Subsidiaries) : procurement management

Online Service to Business :

Travel services

Real estate

Electronic payments

E-autions

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 Employease.com iMark.com NTE Catalogue Hubs Chemdex.com SciQuest.com ElectricalWeb.com MRO Hubs Ariba MRO.com NetBuy.com

B2B EC: Market Mechanism Online Catalog Static pricing Pre-determined Exchange Dynamic pricing Bid-ask market, based on supply & demand Auction Dynamic pricing Competitive bidding Barter Not applicable exchange goods or services Agents Dynamic pricing Negotiated price

Online Catalog

Static pricing

Pre-determined

Exchange

Dynamic pricing

Bid-ask market, based on supply & demand

Auction

Dynamic pricing

Competitive bidding

Barter

Not applicable

exchange goods or services

Agents

Dynamic pricing

Negotiated price

B2B EC : Online Catalog Buyer Benefits Reduce Procurement Process costs and inventory costs Expand potential supplier base Easy product comparison based on multiple dimensions (price, quality, service, available.) Seller Benefits Lower cost of sales New sales channel Lower process costs Improve customer satisfaction Create value by aggregating suppliers & buyers It works best in industries characterized by fragmented buyers and sellers who transact frequently for relatively small ticket items Examples : Chemdex, MRO, SciQuest

Buyer Benefits

Reduce Procurement Process costs and inventory costs

Expand potential supplier base

Easy product comparison based on multiple dimensions (price, quality, service, available.)

Seller Benefits

Lower cost of sales

New sales channel

Lower process costs

Improve customer satisfaction

Create value by aggregating suppliers & buyers

It works best in industries characterized by fragmented buyers and sellers who transact frequently for relatively small ticket items

Examples : Chemdex, MRO, SciQuest

Buyer Benefits venue to fill immediate purchase needs Seller Benefits venue to offload excess capacity at market prices Create value by temporal matching of supply & demand. Provide a spot market for commodities A real-time, bid-ask matching process, market wide price determination is required. B2B EC : Online Exchange Examples : Paper Exchange, eSteel, Altra, Enermetrix, Arbinet.

Buyer Benefits

venue to fill immediate purchase needs

Seller Benefits

venue to offload excess capacity at market prices

Create value by temporal matching of supply & demand. Provide a spot market for commodities

A real-time, bid-ask matching process, market wide price determination is required.

Examples : Paper Exchange, eSteel, Altra, Enermetrix, Arbinet.

B2B EC : Online Auctions Buyer Benefits Lower prices through competitive seller bidding in reverse auction Easier to find unique products & services Broader selection Seller Benefits Increased inventory turn over Sellers get more bidders for more competitive bidding & higher selling prices Surplus inventory, used capital equipment, discontinued goods, perishable items, refurbished products are suitable for auction. In traditional auctions : the competitive bidding process results in upward price movement. The reverse auctions , a format in which sellers compete for a buyer’s offer to purchase, prices may move downward. Examples : FreeMarkets: (a reverse auction for manufactured input) TradeOut: (Auctions for asset procurement & excess inventory) PaperExchange: (auction for paper-related capital equipment.) iMark.com (sell-auction model for capital equipment).

Buyer Benefits

Lower prices through competitive seller bidding in reverse auction

Easier to find unique products & services

Broader selection

Seller Benefits

Increased inventory turn over

Sellers get more bidders for more competitive bidding & higher selling prices

Surplus inventory, used capital equipment, discontinued goods, perishable items, refurbished products are suitable for auction.

In traditional auctions : the competitive bidding process results in upward price movement.

The reverse auctions , a format in which sellers compete for a buyer’s offer to purchase, prices may move downward.

Examples :

FreeMarkets: (a reverse auction for manufactured input)

TradeOut: (Auctions for asset procurement & excess inventory)

PaperExchange: (auction for paper-related capital equipment.)

iMark.com (sell-auction model for capital equipment).

Creates value by matching 2 parties that possess reciprocal assets within an asset class or across asset classes. Benefits Enable firms to barter excess supplies of components or products that would have otherwise been sold for low prices. B2B EC : Online Bartering Examples : FastParts Inc. and FairMarket Inc. operate thriving exchanges where computer electronics companies swap excess parts. .

Creates value by matching 2 parties that possess reciprocal assets within an asset class or across asset classes.

Benefits

Enable firms to barter excess supplies of components or products that would have otherwise been sold for low prices.

Examples : FastParts Inc. and FairMarket Inc. operate thriving exchanges where computer electronics companies swap excess parts.

.

Shopbots : shopping agents that automatically search the Internet to obtain information about prices and other attributes of goods and services. Pricebots : retailers also use it to check each other’s prices. The Internet is moving toward an open, friction-free marketplace in which software agents will manage the buying and selling of goods B2B EC : Software Agents

Shopbots : shopping agents that automatically search the Internet to obtain information about prices and other attributes of goods and services.

Pricebots : retailers also use it to check each other’s prices.

The Internet is moving toward an open, friction-free marketplace in which software agents will manage the buying and selling of goods

Three types of communication network used for electronic commerce 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

Three types of communication network used for electronic commerce

Communication Networks: Provide employees access to B2B activities Provide access from B2B activities to the back-end applications. Support knowledge management functions/communities of practice Intranets

Provide employees access to B2B activities

Provide access from B2B activities to the back-end applications.

Support knowledge management functions/communities of practice

Communication Networks: Inter-organizational Information Systems (IOS) 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. Pre-selected business partners Major concerns with security and trust Indirect Connection EDI (Electronic Data Interchange): proprietary Value Added Networks (VANs) Direct Connection EDI / WebEDI / Open EDI : Public Network Infrastructure Extranets

Inter-organizational Information Systems (IOS)

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.

Pre-selected business partners

Major concerns with security and trust

Indirect Connection EDI (Electronic Data Interchange): proprietary Value Added Networks (VANs)

Direct Connection EDI / WebEDI / Open EDI : Public Network Infrastructure

Communication Network: Electronic markets Third-party intermediaries that match buyers and sellers within: A specific industry ( vertical ) A specific business function ( horizontal ) in a public marketplace Internet-based Electronic Markets B2B EC Software Designed to help companies build Web sites that host, catalog, marketplace and other commercial sales activities Major software packages: Netscape: SellXpert & ECXpert OpenMarket Transact IBM’s Websphere CommerceOne Ariba

Electronic markets

Third-party intermediaries that match buyers and sellers within:

A specific industry ( vertical )

A specific business function ( horizontal )

in a public marketplace

B2B EC Software

Designed to help companies build Web sites that host, catalog, marketplace and other commercial sales activities

Major software packages:

Netscape: SellXpert & ECXpert

OpenMarket Transact

IBM’s Websphere

CommerceOne

Ariba

Many Choices

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

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

Optimal Decisions Decisions have to integrate with the overall corporate strategy (from resource-based view and positioning school) Attract larger number of participants Provide value and not merely price Value added: delivery, quality, reputation, reliability, speed, information Supplier-customer relationship: sharing and trust May depend on industry, firm type, products, business process, knowledge and technology, etc.

Decisions have to integrate with the overall corporate strategy (from resource-based view and positioning school)

Attract larger number of participants

Provide value and not merely price

Value added: delivery, quality, reputation, reliability, speed, information

Supplier-customer relationship: sharing and trust

May depend on industry, firm type, products, business process, knowledge and technology, etc.