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Chapter 6

Business-to-Business Electronic Commerce (B2B EC)

Learning Objectives
Describe the B2B field Describe the major types of B2B models Describe the characteristics of the sell-side marketplace Describe the sell-side intermediaries models Describe the characteristics of the buyside marketplace and e-procurement

Learning Objectives (cont.)

Explain how forward and backward auctions work in B2B Describe B2B aggregation and group purchasing models Describe collaborative e-commerce Understand issues concerning the implementation of company-centric B2B Distinguish Internet-based EDI from traditional EDI

General Motors B2B Initiatives

EC initiativesbuild-to-order project to be in place by 2005 reducing inventory of finished cars
Selling capital assets
TradeXchange online auctions of items like used machines for manufacturing
Significantly decreases time for sales Increases dollar amount of the sales

General Motors B2B Initiatives

EC initiatives at TradeXchange
Buying commodity products--$1 billion annual expenditure for direct and indirect products
Traditional process
Length of time measured in weeks Cost prohibited the number of bids

Reverse auctionautomated process

Internet open bidmany suppliers take part Job is awarded quickly Price to GM significantly lower

Concepts and Characteristics of B2B EC

B2B EC defined
Transaction conducted electronically between business over the networks
Internet Extranets Intranets Private networks (e.g., EDI)

Automated trading improves the process


Concepts and Characteristics of B2B EC (cont.)

Market size and content
Expected to grow from $1.1 trillion in 2003 to $10 trillion by 2005 Percentage of Internet-based B2B from 2.1% in 2000 to 10% in 2005

Private and public e-marketplace

Privateone-to-many mode Publicmany-to-many mode

Concepts and Characteristics of B2B EC (cont.)

How is B2B conducted?
Directly between buyer and seller Via an online intermediary Along the supply chain With or without intermediaries

Types of transactions
Spot buyingdetermined by dynamic supply and demand Strategic sourcinglong term contracts

Figure 6-1 B2B Supply Chain

Concepts and Characteristics of B2B EC (cont.)

Supply chain relationships
Interrelated subprocesses and roles
Acquisition of materials Processing products and services Moving to distributors Purchase by consumer

Traditional process managed through paper transactions B2B applications offer competitive advantages for supply chain management (SCM)


Concepts and Characteristics of B2B EC (cont.)

Entities of B2B EC
Selling companymarketing management perspective Buying companyprocurement management perspective Electronic intermediariesoptional third party directory service provider (scope of service may be extended to order fulfillment) Trading platformspricing and negotiation protocol (auctions, reverse auctions)


Concepts and Characteristics of B2B EC (cont.)

Entities of B2B EC (cont.)
Payment servicesmechanism for
transferring money to sellers Logistics providerslogistics to complete transaction (packaging, storage, delivery) Network platformsInternet, VAN, intranet, extranet Protocols of communicationEDI or XML Back-end integrationconnecting to ERP systems, databases, functional applications


Concepts and Characteristics of B2B EC (cont.)

Information processed in B2B
Product Customer Supplier Product process Transportation
Inventory Supply chain Competitor Sales and marketing Supply chain process and performance

Concepts and Characteristics of B2B EC (cont.)

Electronic intermediaries in B2B
Consumers and business may share intermediaries Businesses may use different intermediaries with different suppliers

Benefits of B2B models

Eliminate paper-based systems Expedite cycle time Reduce errors Increase employee productivity Reduce costs Increase customer service and partnership management


B2B Models
Company-centric models
Sell-side marketplace (one-to-many) Buy-side marketplace (many-to-one)

Many-to-many marketplacesthe exchange

Buyers and sellers meet to trade
Trading communities Trading exchanges Exchanges


B2B Models (cont.)

Other B2B models and services
For the purpose of selling For the purpose of buying Value chain integrators Value chain service providers Information brokers

Vertical vs. horizontal marketplaces

Verticalone industry or industry section Horizontalservice or product used in several types of industries


B2B Models (cont.)

Virtual service industries in B2B
Travel and tourism services Real estate Electronic payments Online stock trading Online financing Other online services


Figure 6-2 Sell-Side Marketplace Architecture


Sell-Side Marketplaces:One-to-Many
Virtual of Hong Kong
B2B office supply retailer services
Large corporate clients Medium corporate clients Small offices

Goalsell products in various SE Asian countries

Offers more than 10,000 items Uses more than 300 suppliers


Sell-Side Marketplaces: One-to-Many (cont.)

Virtual of Hong Kong


Company portal attractive, easy to use

Browse online catalogs Use search engines Payments
Cash or check upon delivery Automatic payments Credit card Purchasing card


Sell-Side Marketplaces: One-to-Many (cont.)

Virtual of Hong Kong (cont.)
Owns trucks and warehouses Delivery scheduled online Same day (within an hour) Specifically scheduled time Ordering system integrated with SAP-based back-office system


Sell-Side Marketplaces: One-to-Many (cont.)

Virtual of Hong Kong (cont.)
Value-added services
Track status of order Check stock availability Promotions Customized prices Group accounts and central approvalfor businesses with multiple branches Standing orders automatically activated Large number of reports and data available


Sell-Side Marketplaces: One-to-Many (cont.)

Customer service
General Electric
20 million calls/year about appliances Reduced cost of each call from $5 to $0.20

Milacron, Inc.
Site contains 55,000 products
Easy to use Securely handles selection, purchase, application

Technical serviceexpanded to provide a higher level of service than previously available at the site 23

Sell-Side Marketplaces: One-to-Many (cont.)

Direct sales from catalogs
Configuration and customization
Efficient customization for direct sales Business customers
Customize products Receive price quote Submit order

Successful cases
Dell Intel

IBM Cisco

Sell-Side Marketplaces: One-to-Many (cont.)

Direct sales from catalogs
Reduces costs (to buyers and sellers) and errors during the process Speeds up order cycle Ability to customize products Offer different prices to different customers


Sell-Side Marketplaces: One-to-Many (cont.)

Direct sales from catalogs (cont.)
Channel conflicts with distribution systems High cost when traditional EDI used Large number of business partners is needed to justify system


Selling Side: Auctions and Other Models

Forward auctionsquick disposal of items
Revenue generation Increased page views Member acquisition and retentionbidding transactions result in additional registered members

Selling from own site when:

Large companies that conduct auctions frequently dont benefit from using intermediaries E-marketplace already in use, cost of adding auction not too high


Selling Side: Auctions and Other Models (cont.)

Using intermediaries when:
No resources required Own and control auction information Fast time to market

Searching and reporting

Search and report all auction activities Standard reports available Additional analysis of complex information

Selling Side: Auctions and Other Models (cont.)

Billing and collection
Automatic calculation of shipping weights and charges Paymentencrypted credit card data Billing informationeasily downloaded into
existing systems

Successful if:
Sufficient number of loyal customers Products well known Price not major purchasing criteria


Sell-Side Case: CISCO Connection Online (CCO)

Benefitssaves the company $363 million
per year in:
Technical support Human resources Software distribution Marketing material


Cisco Connection Online (CCO) (cont.)

Customer serviceCisco Connection online Online orderingInternet Product Center builds virtually all products to order Order statuscustomer tools for finding answers to order status inquiries


Cisco Connection Online (CCO) (cont.)

Benefits to Cisco
Reduced operating costs for order taking Enhanced technical support and customer service Reduced technical support staff cost Reduced software distribution costs Lead times reduced fro 4-10 days to 2-3 days


Cisco Connection Online (CCO) (cont.)

Benefits to customers
Quick order configuration Immediate cost determination Collaboration with Cisco staff


Sell-Side Intermediaries
Marshall Industries(a subsidiary of
AvnetMarshall) multinational distributor of

electronic components known for its innovative uses of IT and the Web Products and services
MarshallNet Marshall on the Internet (portal) Strategic European Internet Electronic Design Center PartnerNet NetSeminar Education and News Portal


Sell-Side Intermediaries (cont.)

Marshall Industriesa subsidiary or
AvnetMarshall (cont.)
Survival strategy
Continuous improvement programs and innovations Team-based organization, flat hierarchy, decentralized decision making Profit sharing compensation for salespeople

Sell-Side Intermediaries (cont.)

Marshall Industriesa subsidiary of
AvnetMarshall (cont.)
Survival strategy
CRM highly promoted Web-based services create value between suppliers and customers EC initiatives supported by: Changing internal organization Changing internal procedures


Sell-Side Intermediaries (cont.)

Boeings PART
Acts as an intermediary between the airlines and parts suppliers Provides a single point of online access through which airlines and parts providers can access the data needed Goal: provide its customers with one-stop shopping for online parts and maintenance information and ordering capability

Sell-Side Intermediaries (cont.)

Boeings PART
Spare parts business using traditional EDI
Mechanic tells purchasing department parts are needed, purchase is approved, purchase is made Large airlines connect to Boeing's VAN Boeing finds part and delivers

Debut of PART on the Internet

Encourages customers to order parts electronically cheap, easy, fast 50% of customers using Internet within first year


Sell-Side Intermediaries (cont.)

Boeings PART Benefits of PART online
Improved customer service Significant operating savings New sales opportunities Customer service online reduced
Phone calls (purchasing, order status etc.) Data entry

Sell-Side Intermediaries (cont.)

Boeings PART
Portable access to technical drawings/support
Boeing On Line Data (BOLD) provides availability to:

Engineering drawings Manuals Catalogs Other technical information

Portable Maintenance Aid (PMA)solves maintenance problems


Sell-Side Intermediaries (cont.)

Boeings PART
Benefits to Boeings customers
Increased productivityless time searching for information Reduced costsdelays at gate reduced because all information is available Increased revenuesfaster service provides time savings

Buy Side: One-from-Many, E-Procurement

Purchasing agents (buyers)
Direct purchasing
Use of material is scheduled Not a shelf item

Indirect purchasing
MROs Nonproduction materials

Inefficiencies in procurement management of indirect materials


Figure 6-3 A Traditional Purchasing Process Flow

Source:, February 2001.


Buy Side: One-from-Many, E-Procurement (cont.)

Innovative procurement management
Innovative purchasing as strategic approach to increase profit margins Web facilitation includes:
Electronic tendering Volume purchasing Aggregating supplier catalogs at buyers site Group purchasing Others


Buy Side: One-from-Many, E-Procurement (cont.)

Goals of procurement reengineering
Increase purchasing agent productivity Lower purchasing prices of items Improve information flow and management Minimize maverick (unplanned) buying Improve payment process Streamline purchasing process to make it:
Simple Fast


Buy Side: One-from-Many, E-Procurement (cont.)

Goals of procurement reengineering (cont.)
Reduce administrative processing cost per order Find new suppliers and vendors to provide faster/cheaper goods and services Integrate procurement process with budgetary control in an efficient and effective way Minimize human errors in buying or shipping process


Figure 6-4 Buy-Side B2BMarketplace Architecture


Buy Side: One-from-Many, E-Procurement (cont.)

Direct vs. indirect sourcing
Tools to automate purchasing goods
Direct or mission critical 80% of manufacturers expenditure Long-term relationship with vendor of known quality goods Tight integration with suppliers along supply chain Indirectuse of public exchanges for indirect sourcing


Buy Side: Reverse Auctions

Pre-Internet Reverse auction process
Prepare description of product to be produced Announce project via ads, mail, telephone Send detailed information to interested vendors Vendors prepare proposals Bidders submit document proposals Proposals evaluated Problems:
Laws Expensive Errors


Buy Side: Reverse Auctions (cont.)

Web-based reverse auction process
Buyers prepare bidding project information Buyers post project on portal Identify potential suppliers Invite suppliers to bid Suppliers download project information Suppliers submit electronic bid Reverse auction in real-time, or it can take a few days Buyers evaluate and award contract


Buy Side: Reverse Auctions (cont.)

Web-based reverse auction process
Electronic process is faster Administratively much less expensive Enables location of cheapest possible products


Procurement Revolution at GE
TPN at GE Lighting Division
Purchasing was inefficienttoo many administrative transactions
Process for each requisition took 7 days Complex and time-consuming Could only send out bids for 2 or 3 suppliers

Trading Process Network (TPN)electronic bids

Entire process takes 7 days (for suppliers to bid) 2 hours to send information to suppliers Evaluate and award bids same day


Procurement Revolution at GE (cont.)

Benefits to GE
Involvement in procurement process
Labor declined 30% Material costs declined 5%-20%--wider base of suppliers online

60% of the staff Sourcing department concentrates on strategic activities instead of paperwork, etc.


Procurement Revolution at GE (cont.)

Benefits to GE
Time to identify suppliers, prepare a request for bid, negotiate a price, and award the contract
Was 18-23 days Now 9-11 days

Invoices automatically reconciled reflecting modifications GE procurement departments share information about their best suppliers across the world


Procurement Revolution at GE (cont.)

Benefits to buyers
Worldwide supplier partnerships Current business partners
Strengthen relationships Streamline sourcing process

Rapid distribution of information Transmit electronic drawings to multiple suppliers Decrease sourcing cycle time Quick receipt and comparison of pricing bids


Procurement Revolution at GE (cont.)

Benefits to suppliers
Increased sales volume Expanded market reach, finding new buyers Lowered administration costs for sales and marketing activities Shortened requisition cycle time Improved sales staff productivity Streamlined bidding process


Procurement Revolution at GE (cont.)

Deployment strategies
Start EC in one division and slowly go to all divisions Use the site as public bidding marketplace to generate commission income to GE


Aggregating Catalogs
Aggregating suppliers catalogs: an internal marketplace
Maverick buying to save time leads to high prices Aggregating all approved suppliers catalogs in one place

Reduced number of suppliers

Buyers at multiple corporate locations
Fewer and remote suppliers Larger quantity/lower costs


Group Purchasing
Group purchasingorders from several buyers are aggregated
Internal aggregation
Economy of scale Reduced transaction processing cost

External aggregation
Aggregating demand online Putting together orders from multiple buyers to make large volumes/lower costs


Electronic Bartering
Electronic bartering
Exchange of goods or services without the use of money Exchange a surplus for other need Bartering exchange
Submit surplus to exchange for points Points used to buy what company needs

Faster than manually Easier to match


Collaborative Commerce (C-Commerce)

Web-based systems used between and among suppliers for:
Communication Design Planning Information sharing Information discovery

Webcore construction goes online with its partners


Figure 6-6 Suppliers Extranet: Hudson Dayton Case


Collaborative Commerce (C-Commerce) (cont.)

Reduce design cycle time by connecting suppliers: Adaptec, Inc.
Microchip manufacturer supplying electronic equipment makers
Outsources manufacturing tasks Delivery times exceeded their competitors

Solution to the problem

Extranet and enterprise-level supply chain integrated software Significantly reduced order-to-product delivery time


Collaborative Commerce (C-Commerce) (cont.)

Reduce product development time by connecting suppliers: Caterpillar, Inc. Heavy machinery manufacturer uses extranet
Request for customized component directly to designers and suppliers ship to buyers Connect engineering and manufacturing division with worldwide
Suppliers Distributors Overseas Factories Customers


Collaborative Commerce (C-Commerce) (cont.)

Other examples of c-commerce
Tricon Restaurant Internationalglobal brand marketing management RE/MAXreal estate franchiser improved communication and collaboration between independent owners Marriott Internationallinks corporations, franchising partners, suppliers, customers Nygard of Canadainterorganizational collaboration


B2B Infrastructure

Server to host database and applications Software for executing sell-side (catalogs) Software for conducting auctions and reverse auctions Software for e-procurement (buy-side)


B2B Infrastructure (cont.)

Software for CRM Security hardware and software Software for building a storefront Telecommunications networks and protocols


Extranet and EDI

Secure interorganizational networks Traditional EDI limits accessibility of small companies Internet-based EDI offers wide accessibility to companies around the world


ERP software Customer, supplier, and other databases Legacy systems Catalog (product) information Inventory systems Sales statistics Decision support systems (DSS) and SCM applications


Integration (cont.)
Integration with existing information systems
Issues in integrating with back-end information systems:
Intranet-based work flow Database management systems (DMBS) Application packages ERP Back-end sell-side integration works for sellers but not buyers and vice versa


Integration (cont.)

Integration with business partners

Easy integration with one company-centric side Not easy to integrate for many buyers or sellers Need buyer owned shopping cart that can interface with back-end information systems


Figure 6-7 Intelligent Agent-Based Commerce

B2B Agents

Source: J. K. Lee and W. Lee (1997).


Implementation Issues
Justification and prioritization
Must conduct cost benefit analysis of proposed projects Include organizational impacts
Possible channel conflicts Dealing with resistance to change due to processes reengineering

Cost-benefit analysis related to:

Finding B2B opportunities Prioritizing potential initiatives


Implementation Issues (cont.)

Vendor selection
Primary vendor uses its software and procedures, adds partners as needed Integrator mixes and matches existing products and vendors to create best of the breed

Affiliate programs
Referral program Useful for B2B intermediaries


Implementation Issues (cont.)

Implementing e-procurement
Fit e-procurement into EC strategy Review and change procurement process itself If ERP or SCM is in placeintegrate e-procurement, If not in placeBPR before implementation Coordinate buyers information system with sellers


Managerial Issues
B2B marketingsell-side marketplaces require advertisement and incentives Which models to use and whenneed for implementation strategies and prioritization Purchase process reengineering (BPR)
Establish buy-side marketplace on its server if volume is big enough to attract major vendors Join third-party intermediary-oriented marketplace if volume is small


Managerial Issues (cont.)

Integrationtrading in e-marketplaces is interrelated with logistics
Particularly true in many-to-many exchanges Company-centric marketplaces must integrate:
Logistics Other support services


Managerial Issues (cont.)

Business ethics
Accessing unauthorized areas in the tracing system should not be allowed Privacy of partners should be protected technically and legally

Auctionsboth forward and reverse

Benefits are substantial Implementation is relatively simple Considerable flexibility in implementation


Managerial Issues (cont.)

E-procurementcritical success factors
Need to cut down number of routine tasks Reduce overall procurement cycle using appropriate information technologies
Workflow Groupware ERP software B2B models