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Week 9

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Week 9

  1. 1. MGT 235 Planning, Process, and Structure in Electronic Business Week 9
  2. 2. B2B: Characteristics <ul><li>Participants </li></ul><ul><ul><li>Direct seller to buyer / buyer to seller </li></ul></ul><ul><ul><li>Intermediaries </li></ul></ul><ul><li>Transaction types </li></ul><ul><li>Material types </li></ul><ul><ul><li>Direct materials – e.g., tongue depressors </li></ul></ul><ul><ul><li>Indirect materials – e.g., surgical rubber gloves </li></ul></ul><ul><li>Direction of trade </li></ul><ul><ul><li>Vertical market – industry specific (e.g., chemicals – including those used in glues, paints, pesticides, etc.) </li></ul></ul><ul><ul><li>Horizontal market – product specific (e.g., glues used in woodworking, plastics shops, etc.) </li></ul></ul>
  3. 3. B2B: Transaction Types <ul><li>Sell-side – one seller, many buyers </li></ul><ul><li>Buy-side – one buyer, many sellers </li></ul><ul><li>Exchanges – many sellers, many buyers </li></ul><ul><li>Collaborative commerce – partnerships </li></ul><ul><li>Spot buying – market opportunistic </li></ul><ul><li>Strategic sourcing – long-term contracting </li></ul>
  4. 4. B2B: Benefits <ul><li>Cost control </li></ul><ul><ul><li>Reduce administrative costs </li></ul></ul><ul><ul><li>Reduce cycle time </li></ul></ul><ul><ul><li>Lower buyers’ search costs and time </li></ul></ul><ul><li>Quality control </li></ul><ul><ul><li>Reduce errors </li></ul></ul><ul><ul><li>Improve customer service quality </li></ul></ul><ul><li>Product / service flexibility </li></ul><ul><ul><li>Increase flexibility with JIT delivery </li></ul></ul><ul><ul><li>Reduce inventory level and costs </li></ul></ul><ul><ul><li>Facilitates mass customization </li></ul></ul>
  5. 5. B2B: Sell-side Markets <ul><li>Direct sales – e.g., IBM, Xerox, Dupont, 3M </li></ul><ul><ul><li>Eliminates sales middleman </li></ul></ul><ul><ul><li>Use stored buyer information to offer different catalogs to different buyers </li></ul></ul><ul><li>Auctions – e.g., GM </li></ul><ul><ul><li>New channel for disposing of capital equipment, dated product, etc. </li></ul></ul><ul><ul><li>Reduced costs and time for selling </li></ul></ul><ul><li>Customer service </li></ul><ul><ul><li>Direct to customer – e.g., Cisco </li></ul></ul><ul><ul><li>Intermediary – e.g., Boeing – linking airlines and maintenance parts providers </li></ul></ul>
  6. 6. B2B: Buy-side Markets <ul><li>Procurement problems </li></ul><ul><ul><li>Qualify suppliers </li></ul></ul><ul><ul><li>Negotiate terms </li></ul></ul><ul><ul><li>Repetitive data entry, paperwork review, etc. processes for 80% of purchases (MROs) </li></ul></ul><ul><li>E-procurement remedied much of these </li></ul>
  7. 7. B2B: Reverse Auction <ul><li>Reverse auction – here’s what I need, you all bid on serving my needs (RFQ) </li></ul><ul><ul><li>Direct from company web site (e.g., GE) </li></ul></ul><ul><ul><ul><li>Post specifications for solicitation </li></ul></ul></ul><ul><ul><ul><li>Identify appropriate bidders </li></ul></ul></ul><ul><ul><ul><li>Conduct auction </li></ul></ul></ul><ul><ul><ul><ul><li>Allow multiple bids by a bidder or only one? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Allow bidders viewing of all bids or none? </li></ul></ul></ul></ul><ul><ul><li>Through intermediaries (e.g., freemarkets.com) </li></ul></ul><ul><ul><ul><li>The intermediary may do none, some, or a lot of bidder screening for you </li></ul></ul></ul><ul><ul><ul><li>Screening level determines cost </li></ul></ul></ul>
  8. 8. General Electric: The GXS TPN System <ul><li>From 1982 – 1992 </li></ul><ul><ul><li>Costs increased 16% </li></ul></ul><ul><ul><li>Prices remained flat or decreased </li></ul></ul><ul><ul><li>25% of invoices not reconcilable with Pos </li></ul></ul><ul><ul><li>100s of RFQ handled daily </li></ul></ul><ul><ul><li>Requisition process took 7 days to copy blueprints and attach to RFQ </li></ul></ul><ul><ul><li>18-23 days from start to contract award </li></ul></ul>
  9. 9. General Electric: The GXS TPN System <ul><li>After TPN (Trading Process Network) </li></ul><ul><ul><li>RFQs sent electronically </li></ul></ul><ul><ul><li>Automatically pulls / attaches blueprints </li></ul></ul><ul><ul><li>Within 2 hrs suppliers notified by email / EDI </li></ul></ul><ul><ul><li>Invoices / POs reconciled automatically </li></ul></ul><ul><ul><li>Procurement labor declined 30% </li></ul></ul><ul><ul><li>More competition among suppliers generated 5%-50% material cost reductions </li></ul></ul><ul><ul><li>50% fewer procurement employees </li></ul></ul><ul><ul><li>9-11 days from start to contract award </li></ul></ul><ul><ul><li>Estimated $500-$700 million annual savings </li></ul></ul>
  10. 10. Collaborative Commerce <ul><li>Communication </li></ul><ul><li>Information sharing </li></ul><ul><li>Product / service / business process planning </li></ul><ul><li>Done together by buyer and supplier </li></ul><ul><li>Using </li></ul><ul><ul><li>Groupware </li></ul></ul><ul><ul><li>CAD sharing applications </li></ul></ul><ul><ul><li>Extranets </li></ul></ul><ul><ul><li>Video-conferencing </li></ul></ul><ul><ul><li>Email and other electronic collaboration tools </li></ul></ul><ul><li>Example: Warner-Lambert, P&G Collaborative Planning, Forecasting, and Replenishment (CPFR) system </li></ul>
  11. 11. B2B: Public Exchanges <ul><li>Online trading markets </li></ul><ul><li>Mediating many buyers and many sellers </li></ul><ul><li>Generate contracts through negotiation </li></ul><ul><li>Usually run by third party market makers </li></ul><ul><li>Account for almost 50% of all B2B </li></ul><ul><li>$3 trillion in transactions annually </li></ul><ul><li>Offer a range of services from low-level aggregation to extensive supplier screening </li></ul>
  12. 12. Public Exchanges: Dimensions <ul><li>Pricing </li></ul><ul><ul><li>Can arrange dynamic spot pricing, via reverse auctions </li></ul></ul><ul><ul><li>Aggregate price catalogs from many sellers </li></ul></ul><ul><li>Ownership </li></ul><ul><ul><li>A very big company </li></ul></ul><ul><ul><li>Neutral copmany </li></ul></ul><ul><ul><li>Co-ops </li></ul></ul><ul><li>Typically membership is required </li></ul><ul><li>Site is usually secured </li></ul><ul><li>Often provides ancillary services like industry and economic information </li></ul>
  13. 13. Supplier Aggregation <ul><li>Characteristics </li></ul><ul><ul><li>Standardize, aggregate and index suppliers catalogs </li></ul></ul><ul><ul><li>Buyers search and locate appropriate product / price </li></ul></ul><ul><ul><li>System permits purchase contract generation </li></ul></ul><ul><li>Issues </li></ul><ul><ul><li>Allows buyer access to many options </li></ul></ul><ul><ul><li>Small companies may not have software to participate – go through another “host” </li></ul></ul>
  14. 14. Buyer Aggregation <ul><li>Characteristics </li></ul><ul><ul><li>RFQs aggregated, indexed </li></ul></ul><ul><ul><li>Suppliers notified </li></ul></ul><ul><ul><li>Bids collected from suppliers based on the “total quantities” being solicited for </li></ul></ul><ul><ul><li>Bids then relayed to buyers </li></ul></ul><ul><li>Issues </li></ul><ul><ul><li>Results in “volume discounts” </li></ul></ul><ul><ul><li>Not well suited for one-time or unique products </li></ul></ul>
  15. 15. Exchange Revenue Models <ul><li>Memberships </li></ul><ul><li>Transaction fees - commissions </li></ul><ul><li>Fees for value-added services </li></ul><ul><li>Advertisements </li></ul>
  16. 16. Exchanges: The Technologies Used <ul><li>EDI (typically used for private exchanges) </li></ul><ul><ul><li>Proprietary </li></ul></ul><ul><ul><li>Parties must acquire </li></ul></ul><ul><ul><li>Costly to implement </li></ul></ul><ul><ul><li>Inherently secure </li></ul></ul><ul><li>Extranets (used for both public and private) </li></ul><ul><ul><li>Open platform </li></ul></ul><ul><ul><li>Widespread </li></ul></ul><ul><ul><li>Less costly to implement </li></ul></ul><ul><ul><li>Secured by using database security processes and / or VPN “tunneling” </li></ul></ul>
  17. 17. Exchanges: Technology Implementation Issues <ul><li>Web / client access </li></ul><ul><li>Data exchange </li></ul><ul><ul><li>EDI over VANs and Web-based EDI </li></ul></ul><ul><li>Application to application integration </li></ul><ul><li>Agreement to use same business processes </li></ul><ul><ul><li>Ex: common ordering forms </li></ul></ul>
  18. 18. Choosing an Exchange <ul><li>What level of service is needed / provided? </li></ul><ul><li>Quantify expected costs / savings </li></ul><ul><li>Check exchange’s management / ownership </li></ul><ul><li>Examine membership </li></ul><ul><ul><li>Participants </li></ul></ul><ul><ul><li>Exchange’s Board of Directors </li></ul></ul><ul><li>Verify the exchange’s security practices </li></ul><ul><li>How are payments handled? </li></ul><ul><li>Records of current / past transactions? </li></ul>

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