Chapter 5 B2B E-Commerce: Selling and Buying in Private E-Markets

1. Chapter 5B2B E-Commerce: Selling and Buying in Private E-Markets Jason C.H. Chen, Ph.D. Professor of MIS Graduate School of Business Gonzaga University Spokane, WA 99223 USA chen@jepson.gonzaga.edu

2. Learning Objectives • Describe the B2B field. • Describe the major types of B2B models. • Discuss the characteristics of the sell-side marketplace, including auctions. • Describe the sell-side intermediary models. • Describe the characteristics of the buy-side marketplace and e-procurement. • Explain how reverse auctions work in B2B.

3. Learning Objectives • Describe B2B aggregation and group purchasing models. • Describe other procurement methods. • Explain how B2B administrative tasks can be automated. • Describe infrastructure and standards requirements for B2B. • Describe Web EDI, XML, and Web Services.

4. 5.1 Concepts, Characteristics, and Models of B2B EC • business-to-business e-commerce (B2B EC) Transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B

5. Focus on e-Business Applications Knowledge Management/Business Intelligence E-Commerce E-Customer Relationship Procurement Network Trading Network E-Channel Management Businesses & Consumers (CRM) Businesses (SRM) M:1 M:N 1:N E-Portal Management E-Business, E-Services SCM/ERP/Legacy Appls

6. Exhibit 5.1 Generations of B2B E-Commerce (Key Drivers for B2B E-Commerce) Non-IT Application Management Collaboration With Suppliers And Buyer Integration Internal/External Business Process Management Collaborative Commerce e-Government Personalize And Customize Mobile Commerce Web Services e-CRM e-Marketplaces Exchange Online Ordering B2C, B2B Actions Intelligent Systems Expert Sales System e-Learning Publish And Promote Business values Multichannel 1st Generation 1998 2nd Generation 1999 3rd Generation 2000 4th Generation 2001 5th (current) Generation 2002 and Beyond

7. Concepts, Characteristics, and Models of B2B EC (cont.) • B2B characteristics • Parties to the transaction • Online intermediary:An online third party that brokers a transaction online between a buyer and a seller; can be virtual or click-and-mortar • Types of transactions • Spot buying:The purchase of goods and services as they are needed, usually at prevailing market prices • Strategic (systematic) sourcing: Purchases involving long-term contracts that are usually based on private negotiations between sellers and buyers

8. Concepts, Characteristics, and Models of B2B EC (cont.) • Basic B2B transaction types • -side (1:M) One seller to many buyers • -side (M:1) One buyer from many sellers • (M:M) Many sellers to many buyers • commerce(M and Connected) and supply chain improvement Communication and sharing of information, design, and planning among business partners Sell Buy Exchanges Collaborative

9. Concepts, Characteristics, and Models of B2B EC

10. Concepts, Characteristics, and Models of B2B EC (cont.) • Collaborative commerce (C-commerce) • Communication, design, planning, and information sharing among business partners • To qualify as C-commerce, the activities that are shared must represent far more than just financial transactions (e.g., design, manufacture, or management)

11. Concepts, Characteristics, and Models of B2B EC • The Basic Types of B2B E-Marketplaces and Services • One-to-many and many-to-one: private e-marketplaces • company-centric EC E-commerce that focuses on a single company’s buying needs (many-to-one, or buy-side) or selling needs (one-to-many, or sell-side) • private e-marketplaces Markets in which the individual sell-side or buy-side company has complete control over participation in the selling or buying transaction - Intermediaries

12. Concepts, Characteristics, and Models of B2B EC • Many-to-many: exchanges • exchanges (trading communities or trading exchanges) Many-to-many e-marketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other • public e-marketplaces Third-party exchanges that are open to all interested parties (sellers and buyers) • Supply chain activities and collaborative commerce • B2B2C

13. Concepts, Characteristics, and Models of B2B EC • B2B Characteristics • Parties to the transaction: sellers, buyers, and intermediaries • online intermediary An online third party that brokers a transaction online between a buyer and a seller; may be virtual or click-and-mortar

14. Concepts, Characteristics, and Models of B2B EC • Types of materials traded • direct materials Materials used in the production of a product (e.g., steel in a car or paper in a book) • indirect materials Materials used to support production (e.g., office supplies or light bulbs) • MRO (maintenance, repair, and operation) Indirect materials used in activities that support production – nonproduction materials.

15. Concepts, Characteristics, and Models of B2B EC (cont.) • Direction of trade • marketplaces:Markets that deal with one industry or industry segment (e.g., electronics, cars, steel, chemicals) • marketplaces:Markets that concentrate on a service, material, or a product that is used in all types of industries (e.g., office supplies, PCs) Vertical Horizontal

16. Concepts, Characteristics, and Models of B2B EC • SUPPLY CHAIN RELATIONSHIPS IN B2B • The supply chain process consists of a number of interrelated subprocesses and roles • Acquisition of materials from suppliers • Processing of a product or service • Packaging it and moving it to distributors and retailers • The eventual purchase of a product by the end consumer • A B2B private e-marketplace provides a company with high supply chain power and high capabilities for online interactions

17. Concepts, Characteristics, and Models of B2B EC • Virtual Service Industries in B2B • Travel and hospitality services • Real estate • Financial services • Online stock trading • Online financing • Other online services

18. Concepts, Characteristics, and Models of B2B EC • Benefits of B2B • Eliminates paper and reduces administrative costs. • Lowers search costs and time for buyers • Increases productivity of employees dealing with buying and/or selling • Reduces errors and improves quality of services. • Reduces inventory levels and costs • Increases production flexibility, permitting just-in-time delivery • Facilitates mass customization Expedites cycle time • Increases opportunities for collaboration

19. Concepts, Characteristics, and Models of B2B EC • The Limitations of B2B • Channel conflict • Operation of public exchanges

20. 5.2 One-to-Many: Sell-Side E-Marketplaces • sell-side e-marketplace A Web-based marketplace in which one company sells to many business buyers from e-catalogs or auctions, frequently over an extranet • B2B Sellers • Customer Service • Three major direct sales methods: • selling from electronic catalogs • selling via forward auctions(GM case) • one-to-oneselling

21. One seller One-to-Many: Sell-Side E-Marketplaces

22. One-to-Many: Sell-Side E-Marketplaces • Direct Sales from Catalogs • Configuration and customization • Benefits and limitations of direct sales from catalogs • The benefits of direct sales are similar to that of B2C • Limitations • How to find a buyer • Channel conflicts with their existing distribution systems • The cost to the customers can be high

23. One-to-Many: Sell-Side E-Marketplaces • Direct Sales: The Example of Cisco Systems • Customer service • Online ordering by customers • Tracking order status • Benefits • Reduced operating costs for order taking • Improved quality • Reduced technical support staff cost • Reduced software distribution costs • Faster service

24. One-to-Many: Sell-Side Marketplaces (cont.) • Major benefits of direct sales are: • Lower order-processing costs and less paperwork • A faster ordering cycle • Fewer errors in ordering and product configuration • Lower search costs of products for buyers • Lower search costs of finding buyers for sellers • Sellers can advertise and communicate online • Lower logistics costs • Ability to offer different catalogs and prices to different customers

25. 5.3 Selling via Intermediaries and Distributors • Manufacturers frequently use intermediaries to distribute their products to a large number of buyers, known as distributors • The intermediaries usually buy products from many vendors and aggregate them into one catalog from which they sell • Now, many of these distributors also are selling online

26. 5.4 Selling via Auctions • Using Auctions on the Sell Side • Revenue generation • Cost savings • Increased “stickiness” • Member acquisition and retention

27. Selling via Auctions • Auctioning from the Company’s Own Site • Why should a company pay a commission to an intermediary if the intermediary cannot provide the company with added value • If a company decides to auction from its own site, it will have to pay for infrastructure and operate and maintain the auction site

28. Selling via Auctions • Using Intermediaries in Auctions • An intermediary may conduct private auctions for a seller, either from the intermediary’s or the seller’s site • A company may choose to conduct auctions in a public marketplace, using a third-party hosting company • Benefits • No additional resources are required • No hiring costs or opportunity costs associated with the redeployment of corporate resources • Offer fast time-to-market • Billing and collection efforts, are handled by the intermediary rather than the company

29. Sell-Side Cases I (Cisco) • Direct sales: Cisco Systems • World’s leading producer of routers, switches, and network interconnection services • Cisco’s portal began with technical support for customers and developed into one of the world’s largest direct sales EC sites

30. Sell-Side Cases (cont.) • Customer service • Applications offered: • software downloads • defect tracking • technical advice • 85% of customer service inquiries and 95% of software updates are delivered online • Online ordering by customers • Provides online pricing and configuration tools to customers • 98% are now placed through Cisco Connection Online (CCO) • Order status

31. Sell-Side Cases I (Cisco) - Summary • Direct Sales: The Example of Cisco Systems • Customer service • Online ordering by customers • Tracking order status • Benefits • Reduced operating costs for order taking • Improved quality • Reduced technical support staff cost • Reduced software distribution costs • Faster service

32. Sell-Side Case II - Boeing • B2B intermediary: Boeing’s parts marketplace • World’s largest maker of airplanes for commercial and military customers • Major goal of Boeing’s intermediary parts market, called PART is supporting customers’ maintenance needs as a customer service • Online strategy is to provide a single point of online access through which airlines (buyers) and the maintenance and parts providers (suppliers) can access data about the parts they need • Began using traditional EDI

33. Sell-Side Cases (cont.) • 1996, Boeing introduced its PART page on the Internet • Customers around the world could • check parts availability and pricing • order parts • track order status • Less than a year later, about 50 percent of Boeing’s customers used PART for parts orders and customer service inquiries

34. Sell-Side Cases (cont.) • Boeing OnLine Data (BOLD) enables mechanics and technicians at the airport to access the technical manuals they need for repairs • These manuals are now available in digital form, and mechanics and technicians can access them via wireline or wireless devices

35. Examples of Different B2B E-Commerce Sites Used by Organizational Buyers (and Sellers) Collaboration Hub All sellers and buyers at all levels Best search tool sites Exchanges “Vertical” depth across firms at different levels of production & distribution process Communities Procurement Hub Catalog site Best search tool sites One of two levels (a seller to a buyer) One specific industry Many industries One business “Horizontal” breadth of goods and services

36. Striving for Competitive Advantage Firm • level: Industry & Competitive Analysis • Competitive Forces Model • Competitive Strategy • level • Value-Chain Analysis Business

37. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES • Switching cost • Access to distribution channels • Economies of scale • Redefine products and services • Improve price/performance INDUSTRY COMPETITORS THE FIRM • Cost-effectiveness • Market access • Differentiation of product or service • Buyer selection • Switching costs • Differentiation • Selection of suppler • Threat of backward integration SUPPLIERS CUSTOMERS PORTER’S FIVE COMPETITIVE FORCES MODEL Threats Bargaining power N TM -37 Dr. Chen,The Trends of the Information Systems Technology

38. The Five Forces Model and IS • The Five Forces Model provides a way to think about how information resources can create competitive advantage. • Using Porter’s Model, General Managers can: • Identify key sources of competition they face. • Recognize uses of information resources to enhance their competitive position against competitive threats • Consider likely changes in competitive threats over time N

39. Porter’s Five Forces Model and Value Chain • The value chain model highlights specific activities in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. • Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position.

40. Competitive (Value) Advantage Figure 1.6 (2.4) Process View of the Firm: The Value Chain N

41. Using Information Resources to Alter the Value Chain • The Value Chain model suggest that competition can come from two sources: • Lowering the cost to perform an activity and • Adding value to a product or service so buyers will be willing to pay more. • Lowering costs only achieves competitive advantage if the firm possesses information on the competitors’ cost structure • Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made? When to … N

42. Downstream value The Value System: Interconnecting relationships between organizations Firm value Upstream value N

43. Business Strategies and its Competitive Advantage Uniqueness Perceived by Customer Lower Cost Position Industrywide (Broad Target) Cost Leadership Differentiation Alliance Innovation Growth Competitive Scope Particular Segment only (Narrow Target) Cost Focus Differentiation Focus Knowledge-based economy Industrial economy Competitive Mechanism N Dr. Chen,The Trends of the Information Systems Technology TM -43

44. BREAK-1 • EC Application Case 5.4: How the State of Pennsylvania Sells Surplus Equipment (p.233)

45. 5.5 One-from-Many: Buy-Side Marketplaces and E-Procurement • Buy-side e-marketplace:A corporate-based acquisition site that uses reverse auctions, negotiations, group purchasing, or any other e-procurement method

46. One-from-Many: Buy-Side Marketplaces and E-Procurement (cont.) • Inefficiencies in traditional procurement management • Procurement management:The coordination of all the activities relating to purchasing goods and services needed to accomplish the mission of an organization • Maverick buying:Unplanned purchases of items needed quickly, often at non-pre-negotiated, higher prices • e-procurement:The electronic acquisition of goods and services for organizations

47. One-from-Many: Buy-Side E-Marketplacesand E-Procurement • Six Main Types of E-Procurement (see p.234) • e-sourcing • e-tendering • e-reverse auctioning • e-informing • Web-based ERP (electronic resource planning) • e-MRO (maintenance, repair and operating) • Identifying new suppliers for a specific category of purchasing requirements using Internet tech. • Sending requests for information and prices to suppliers and receiving the suppliers’ responses from Internet tech.

48. One-from-Many: Buy-Side E-Marketplacesand E-Procurement

49. Search for Vendors and Products E-catalogs, brochures, Conventions, exhibits, Telephone calls, visits. Initiate a Purchase Order (PO) Electronic form or rigger ready order. Quality Vendors Which vendors we can do business with? Research firms, financial stability, credit history. Arrange a pick-up or Receive shipment Check shipping document Select a Market Mechanism Private, public, auctions, exchange. Tendering system has a special process. Compare and Negotiate Price, financing , delivery, Quality, etc. Make Payment Approve payment Arrange money transfer. Make a Purchase (Individual or committee) Have a contract. Arrange payment. Exhibit 5.5The E-Procurement Process: A Buyer’s View One-from-Many: Buy-Side Marketplaces and E-Procurement After-Purchase Activities Pre-Purchase Activities

50. Material Flow Information Flow Money Flow B2B e-Procurement Processes Seller/Supplier e-Marketplaces Buyer/Wholesale Supplier Trading Platform Buye/r Wholesale Buyer/Wholesale Trading Platform Supplier B2B e-Procurement Process System • Order mgt. • Finance mgt. • Shipping mgt. • Customer mgt. • e-catalogue • inquiry/ • negotiation • quick ordering • account mgt. 供應鏈Supply Chain e-procurement process system 需求鏈Demand Chain