Business to Business Electronic Commerce

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

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.

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

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

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

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.

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

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.

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

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

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.

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

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

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

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

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

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

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
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.

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).

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.
.

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

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

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

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

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

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.

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Business to Business Electronic Commerce

by Hazman Aziz

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