Chapter 5

Company-Centric B2B and

Collaborative Commerce

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 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 intermediary
models
Describe the characteristics of the buy-
side marketplace and e-procurement
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 Learning Objectives (cont.)

Explain how forward and backward auctions

work in B2B
Describe B2B aggregation and group
purchasing models
Describe collaborative e-commerce and
interorganizational systems
Describe infrastructure and standards
requirements for B2B

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General Motors’ B2B Initiatives

The Problem
EC initiatives—build-to-order project to be
in place by 2005 reducing inventory of
finished cars
What to do with manufacturing machines
that are no longer sufficiently productive
(assets problem)
Resource problem relating to procurement
of commodity products
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 General Motors’ (cont.)

The Solution
TradeXchange (now part of Covisint) online
auctions of items like used machines for
manufacturing
Significantly decreases time for sales
Increases dollar amount of the sales
EC initiatives at TradeXchange
Capital assets problem—implemented its
own electronic market to conduct forward
auctions
Procurement problem—automated the
bidding, creating online reverse auctions
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on its e-procurement site
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 General Motors’ (cont.)

The Results
Within just 89 minutes after the first
forward auction opened, eight presses
were sold for $1.8 million
In the first online reverse auction, GM
purchased a large volume of rubber
sealing packages for vehicle production
at a significantly lower than the price GM
had been paying through negotiated by
manual tendering
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 Concepts, Characteristics,
and Models of B2 EC
Basic B2B Concepts
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
Market Size and Content
Expected to grow from $1.1 trillion in 2003
to $10 trillion by 2005, the percentage of
Internet-based B2B from 2.1% in 2000 to 7
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 Concepts, Characteristics,
and Models of B2 EC (cont.)
B2B EC Characteristics
Parties to the transaction
Online intermediary—an online third-party that
brokers a transaction between a buyer and a
seller; can be virtual or click-and-mortar;
buyers; sellers
Types of transactions
Spot buying—the purchase of goods and
services as they are needed, usually at
prevailing market prices
Strategic sourcing—purchases involving long-
term contractsPrentice
thatHall,
are usually based on
2003
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 Concepts, Characteristics,
and Models of B2 EC (cont.)
Types of materials
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)
MROs (maintenance, repairs, and
operations)—indirect materials used
in activities that support production

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 Concepts, Characteristics,
and Models of B2 EC (cont.)

Direction of trade
Vertical marketplaces—markets that
deal with one industry or industry
segment (e.g., steel, chemicals).
Horizontal marketplaces—markets
that concentrate on a service or a
product that is used in all types of
industries (e.g., office supplies, PCs)

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 Concepts, Characteristics,
and Models of B2 EC (cont.)

The Basic B2B Transaction Types

Sell side—one seller to many buyers
Buy side—one buyer from many sellers
Exchanges—many sellers to many
buyers
Collaborative commerce—
communication and sharing of
information, design, and planning
among business partners 11
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 Exhibit 5.1
Types of B2B E-Commerce

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One-to-Many and Many-to-One:
Company-Centric Transactions

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
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 Many-to-Many: Exchanges
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; also called trading
communities, or trading exchanges
Public e-marketplaces—third-party
markets that are open to all
interested parties (sellers and
buyers) Prentice Hall, 2003
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 Concepts, Characteristics,
and Models of B2 EC (cont.)

Supply chain relationships in B2B

Interrelated subprocesses and roles
B2B applications offer competitive
advantages for supply chain management
(SCM)
Virtual service industries in B2B
Travel and tourism services
Real estate Online stock trading
Electronic payments Online financing
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 Concepts, Characteristics,
and Models of B2 EC (cont.)
Benefits of B2B
Eliminates paper and reduces administrative
costs
Expedites cycle time
Lowers search costs and time for buyers
Increases productivity of employees dealing with
buying and/or selling
Reduces errors and/or improves quality of
services
Reduces inventory levels and costs
Increases production flexibility, permitting just-
in-time delivery
Facilitates mass customization 16
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Sell-Side Marketplaces:One-to-Many
Sell-side e-marketplace—a Web-
based marketplace in which one
company sells to many business
buyers, frequently over an extranet
3 major methods for direct sale in the
one-to-many model:
Selling from electronic catalogs
Selling via forward auctions
One-to-one selling under a negotiated,
long-term contract
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 Sell-Side Marketplaces (cont.)

Virtual sellers—sellers in the sell-side

marketplace can be click-and-mortar
manufacturers or intermediaries, usually
distributors or wholesalers
Customer service
Milacron, Inc.
Site contains 55,000 products, easy to use,
securely handles selection, purchase, application
Technical service—expanded to provide a higher
level of service
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 Buying from Virtual Seller
Bigboxx.com
Bigboxx.com.hk of Hong Kong
B2B office supply retailer services
Goal—sell products in various SE Asian
countries
Offers more than 10,000 items
Uses more than 300 suppliers
Company portal attractive, easy to use
Browse online catalogs
Use search engines
Payments—cash or check upon delivery,
automatic payments, credit card, purchasing card
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 Bigboxx.com (cont.)
Delivery
Owns trucks and warehouses
Delivery scheduled online
Ordering system integrated with SAP-based back-
office system
Value-added services
Track status of order
Check stock availability
Promotions
Customized prices
Group accounts and central approval
Standing orders automatically activated
Large number of reports and data available
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 Exhibit 5.2
Sell-Side B2B Marketplace
Architecture

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 Direct Sales from Catalogs
Companies may:
Offer one catalog for all customers
Customized catalog for each customer
Facilitate the B2B direct sale by
providing the buyer with a buyer
customized shopping cart
Configuration and customization
Efficient customization for direct sales
Business customers customize products,
receive price quote, submit order
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Direct Sales from Catalogs (cont.)

Benefits
Lower order-processing costs
Faster ordering cycle
Fewer errors in ordering and product
configuration
Lower search costs for buyers
Lower search costs for sellers
Lower logistics costs
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Direct Sales from Catalogs (cont.)

Benefits (cont.)
Ability to offer different catalogs and
prices to different customers and to
customize products and services
efficiently
Limitations
Channel conflicts with distribution
systems
High cost when traditional EDI used
Large number of business partners is
needed to justify
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Hall, 2003
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 Selling Via Auctions
Using auctions on the sell-side
Revenue generation
Increased page views
Stickiness—characteristic of customer
loyalty to a Web site, demonstrated by
the number and length of visits to a site
Member acquisition and retention—bidding
transactions result in additional registered
members

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 Selling Via Auctions (cont.)

Selling from own site when:

Large companies that conduct auctions
frequently don’t benefit from using
intermediaries
E-marketplace already in use, cost of
adding auction not too high
Intermediary-oriented e-marketplace
—an e-marketplace in which
intermediaries operate
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 Selling Via Auctions (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 27
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 Selling Via Auctions (cont.)
Billing and collection
Automatic calculation of shipping weights
and charges
Payment—encrypted credit card data
Billing information—easily downloaded into
existing systems
Successful if:
Sufficient number of loyal customers
Products well known
Price not major purchasing criteria
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CISCO Connection Online (CCO)

Benefits—saves the company $363 million

per year in technical support, human
resources, software distribution, marketing
material
Customer service—Cisco Connection online
Online ordering—Internet Product Center
builds virtually all products to order
Order status—customer tools for finding
answers to order status inquiries
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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
Benefits to customers
Quick order configuration
Immediate cost determination
Collaboration with Cisco staff
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 Marshall Industries
Marshall Industries—(a subsidiary of
AvnetMarshall—avnet.com) 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 31
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 Marshall Industries (cont.)
Survival strategy
Continuous improvement programs and
innovations
Team-based organization, flat
hierarchy, decentralized decision
making
Profit sharing compensation for
salespeople
CRM highly promoted
Web-based services create value
between suppliers and customers
EC initiatives supported by:
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Changing internal
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2003
 Boeing’s PART Marketplace

Acts as an intermediary between the

airlines and parts’ suppliers
Provides a single point of online access for
airlines and parts’ providers to access the
data needed
Goal: provide its customers with one-
stop shopping for online parts and
maintenance information and ordering
capability 33
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Boeing’s PART Marketplace (cont.)

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 parts and delivers
Debut of PART on the Internet
Encourages customers to order parts
electronically—cheap, easy, fast 34
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Boeing’s PART Marketplace(cont.)

Benefits of PART online

Improved customer service
Significant operating savings
New sales opportunities
Customer service online reduced
Portable access to technical
drawings/support
Portable Maintenance Aid (PMA)—solves
maintenance problems
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Boeing’s PART Marketplace (cont.)

Benefits to Boeing’s customers

Increased productivity—less time searching
for information
Reduced costs—delays at gate reduced
because all information is available
Increased revenues—faster service
provides time savings

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 Buy Side Marketplaces:
One-from-Many

Procurement methods
Buy from manufacturers, wholesalers, or
retailers at their storefronts, from
catalogs,and by negotiation
Buy from the catalog of an intermediary
Buy from an internal-buyer’s catalog
Conduct a bidding or tendering system
Buy at private or public auction sites
Join a group-purchasing system

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 Buy Side Marketplaces:
One-from-Many (cont.)
Procurement management—the
coordination of all the activities relating to
purchasing goods and services needed to
accomplish the mission of an organization
Inefficiencies in procurement management
Purchasing personnel spend time and
effort on procurement activities
Qualifying suppliers
Negotiating prices and terms
Building rapport with strategic suppliers
Carrying out supplier evaluation and
certification
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 Buy Side Marketplaces:
One-from-Many (cont.)
Buyers are sometimes too busy with the
details of the smaller items
Organizations address this imbalance by
implementing new purchasing models
Potential inefficiencies:
Delays
Paying too much for rush orders
Maverick buying—unplanned purchases
of items needed quickly, often from non-
approved vendors or at higher prices
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 Exhibit 5.4
Traditional Procurement Process

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 Buy Side Marketplaces:
One-from-Many (cont.)

Goals of e-procurement
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 and fast

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 Buy Side Marketplaces:
One-from-Many (cont.)

Goals of e-procurement (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
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 Buy Side Marketplaces:
One-from-Many (cont.)

Implementing e-procurement
Fit e-procurement into company EC
strategy
Review and change procurement
process itself
Provide interfaces between e-
procurement with integrated EIS
Coordinate buyer’s information system
with the sellers
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 Buy Side E-Marketplaces:
Reverse Auctions

Buy-side e-marketplace—a Web-based

marketplace in which a buyer opens an
electronic market on its own server and
invites potential suppliers to bid on the
items the buyer needs; also called the
reverse auction, tendering, or bidding
model
Request for quote (RFQ)—the
“invitation” to a buy-side marketplace 44
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 Exhibit 5.6
Buy-Side B2B Market Architecture

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 Conducting Reverse Auctions
Reverse auctions administered from a
company’s Web site
Bidding process lasts a day or more
Bidders may bid only once or view the lowest bid
and rebid several times
Increasing number of reverse auction sites
makes it impossible for suppliers to monitor
all of them
Online directories list open RFQs
Use software search-and-match agents to reduce
the human burden in the bidding process
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Bidding Through a Third-Party
Auctioneer: Freemarkets.com

United Technologies Corp. needs

suppliers to make $24 million worth of
circuit boards
2,500 suppliers are identified as possible
contractors
List is submitted to FreeMarkets
(freemarkets.com)

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 Freemarkets.com (cont.)

FreeMarkets reduced the list to 50, based

on considerations including:
Plant location
Size of supplier
Plant capacity
Customer feedback
Detailed evaluation of the candidates

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 Freemarkets.com (cont.)
3-hour auction conducted of online
competitive bidding:
First bid was seen by all bidders
Using reverse auction approach, the
bidders reduced their bids
Comprehensive analysis of several of the
lowest bidders
Then recommended the winners and
collected its commission fees
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 Procurement Revolution at GE
TPN (now part of gxs.com)
Purchasing was inefficient—too 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 50
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Procurement Revolution at GE (cont.)

Benefits to GE
Labor declined 30% and material costs
declined 5%-50%--wider base of suppliers
online
Redeployment of 50% of the staff
Takes half the time to identify suppliers,
prepare a request for bid, negotiate a
price, and award the contract
Invoices automatically reconciled reflecting
modifications
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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 52
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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
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 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 54
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 Buying from MasterCard
International’s Internal Catalog

Online buying program at MasterCard:

Allows corporate buyers to select goods and
services from company’s electronic catalog
Goal is to consolidate buying activities from
multiple corporate sites, improve processing
costs, reduce the supplier base
Procurement department defines:
Scope of products or projects to buy
Invites vendors to bid or negotiate prices
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 MasterCard International (cont.)
Contract prices are stored in the internal electronic
catalog
Final buyer at MasterCard compares available
alternatives
Organizational purchasing decision coupled
with an internal workflow management
system
Internal electronic catalog is updated
manually or by software agents
Payments are made with MasterCard’s
corporate procurement card
By 2002, the system was being used by 56
more than 2,500 buyers
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 Group Purchasing

Group purchasing—aggregation several

buyers into volume purchases, so that
better prices can be negotiated
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 57
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 Exhibit 5.7
Group Purchasing Process

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 Electronic Bartering
Bartering exchange—an intermediary that links
parties in a barter; a company submits its surplus
to the exchange and receives points of credit,
which can be used to buy the items that the
company needs from other exchange participants
Exchange of goods or services without the
use of money
Exchange a surplus for other need
Benefits:
Faster than manually
Easier to match
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Collaborative Commerce (C-Commerce)
Collaborative commerce (c-commerce)—
commerce consisting of activities between
business partners in jointly planning, designing,
developing, managing,and researching products
and services
Web-based systems used between and
among suppliers for:
Communication Design
Planning Information sharing
Information discovery 60
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 Collaborative Commerce (cont.)
Varieties of c-commerce:
Joint design efforts
Forecasting
Between and within organizations
Aids communication and collaboration
between headquarters and subsidiaries,
franchisers and franchisees
C-commerce platform provides e-mail,
message boards, chat rooms, online
corporate data access around the globe,
no matter what Prentice
the Hall,
time
2003 zone
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 Webcor Construction
Goes Online with Its Partners
Webcor suffered from too much
paperwork and poor communication
with its:
Architects
Designers
Building owners
Subcontractors
Webcor’s goal: to turn its computer-
aided design (CAD) drawings, memos,
and other information into shared
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 Webcor (cont.)
Webcor uses ASP that hosts its projects
on a secured extranet
Major problem was getting everyone to
accept software:
Complex
User training is necessary
Webcor was in a strong enough position to
choose not to partner with anyone who
would not use ProjectNet
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 Webcor (cont.)

Webcor’s business partners can post

send, or edit CAD drawings, digital
photos, memos, status reports,
project histories
Partners have instant access to new
building drawings
Central meeting place where users can
both download and transmit information
to all parties, all with a PC
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Retailer–Supplier Collaboration:
Target Corporation

Target Corporation is a large retail

conglomerate:
Conducts EC activities with about 20,000
trading partners
1998—established an extranet-based
system for those partners that were not
connected to its VAN-based EDI.

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 Target Corporation (cont.)

The extranet enabled the company to:

Reach many more partners,
Use many applications not available on
the traditional EDI
Streamline its communications and
collaboration with suppliers
Business customers to create
personalized Web pages

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 Continuous Replenishment:
Warner-Lambert

Warner-Lambert (WL) served as a pilot site

for a program called Collaborative
Planning, Forecasting, and Replenishment
(CPFR)
Shared strategic plans, performance
data, and market insight with Wal-Mart
Trading partners collaborate on making
demand forecasts
WL increased its products’ shelf-fill rate
from 87 percent to 98 percent 67
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 Warner-Lambert (cont.)
WL is involved in another collaborative retail
industry project—Supply-Chain Operations
Reference (SCOR):
Divides supply chain operations into parts
Gives a framework with which to evaluate
the effectiveness of their processes along
the same supply chains to:
Manufacturers
Suppliers
Distributors
Retailers
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Reduction of Design Cycle Time:
Adaptec, Inc.

Microchip manufacturer supplying

electronic equipment makers
Outsourced 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
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Reduction of Product Development
Time: 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 Factories
Distributors Customers
Overseas
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 Barriers to C-Commerce
C-commerce is moving ahead fairly
slowly because:
Technical reasons involving integration,
standards, and networks
Security and privacy concerns over who
has access control of information stored
in a partner’s database
Internal resistance to new models and
approaches
Lack of internal skills to conduct c-
commerce
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Interorganizational Collaboration
at Nygard of Canada
Nygard has become a leader in adopting IT
and e-commerce in the apparel industry
Company stays competitive by using EC to
control costs of labor and manufacturing
Developed an ERP and supply chain
management that controls all internal
operations, purchasing, product
development, accounting, production
planning, sales
This enabled the company to develop tight
integration with its trading partners 72
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 Nygard of Canada (cont.)
The moment that a customer buys a pair of pants
at a partner’s retail store:
Information moves from the POS terminal
Automatically generates a reorder at Nygard
SCM:
Matches customers’ orders with the right fabrics
Searches the market pool for the most efficient
combinations of other material for use with
those fabrics

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 Nygard of Canada (cont.)
Sales trigger orders
Manufacturing automatically industries,
and global manufacturers are willing to
operate with razor-thin margins as fabrics,
zippers, and buttons
The moment that raw material is used, an
automatic reorder of the material is
generated
Allows just-in-time production
Quick order delivery (sometimes same
day) 74
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 Nygard of Canada (cont.)

Web-based control system enables

the company to:
Conduct detailed profitability studies
Decisions are evaluated by impacts on
the bottom line
Decision support systems (DSS) models
are used for this purpose

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 Infrastructure for B2B

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)
Software for CRM
Security hardware and software
Software for building a storefront
Software for building exchanges
Telecommunications networks and
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protocols Prentice Hall, 2003
 Extranet and EDI

Value-added networks (VANs)—private,

third-party-managed networks that add
communications services and security to
existing common carriers; used to
implement traditional EDI systems
Internet-based EDI—EDI that runs on the
Internet and so is widely accessible to
most companies, including SMEs
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 Extranet and EDI

Extranets—secured networks (by VPN),

usually Internet-based, that allow business
partners to access portions of each other’s
intranets; “extended intranets.”

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 Integration

Integration with existing information

systems issues
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

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 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
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 The Role of XML in
B2B Integration
Companies interact easily and effectively
by connecting to their servers,
applications, databases
Standard protocols and data-
representation schemes are needed
Web is based on the standard
communication protocols useful only for
displaying static visual Web pages:
TCP/IP
HTTP
HTML 81
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 The Role of XML in
B2B Integration (cont.)

XML (eXtensible Markup Language)—

standard (and its variants) used to improve
compatibility between the disparate systems
of business partners by defining the
meaning of data in business documents
Used to increase:
Interactivity
Accessibility with speech recognition
systems
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 XML Unifies
Air Cargo Tracking System

B2B intermediary, TradeVan Information

Services of Taiwan provides information
services about the cargo flights of different
airlines
Different information systems have
different query results
XML facilitates data exchange between
heterogeneous databases
Information can be presented on
wireless application protocol (WAP)- 83
based cell phones
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Air Cargo Tracking System (cont.)

System is expected to:

Reduce delays significantly
Benefit of all members of the supply
chain
Returns a standardized yet personalized
presentation for different airlines
Enables customs brokers to reduce the
cycle time by preparing declarations of
imports faster
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Air Cargo Tracking System (cont.)

Buyers and other supply chain partners

can schedule production lines with
precision and in advance
Quality of door-to-door delivery companies
is improved through fast communication
Answers to queries can be derived much
faster
Improves the supply chain by reducing:
Delivery lead times
Inventory levels
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 The Role of Software Agents
in B2B EC

Agent’s role in the sell-side

marketplace
B2C comparison-shopping
B2B agents collect information from
sellers’ sites for buyers
Agent’s role in the buy-side
marketplace
Assisting large number of buyers
requesting quotes from multiple potential
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suppliers in buy-side
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 Managerial Issues

Can we justify the cost?

Which vendor(s) should we select?
Which model(s) should we use?
Do we need B2B marketing?
Should we reengineer our procurement
system?
What restructuring will be required for the
shift to e-procurement?
What integration would be useful?
What are the ethical issues in B2B? 87
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 Summary
The B2B field
The major B2B models
The characteristics of sell-side
marketplaces
Sell-side intermediaries
The characteristics of buy-side
marketplaces
Forward and reverse auctions
B2B aggregation and group purchasing
Collaborative EC
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Characteristics Prentice
of Internet-based
Hall, 2003 EDI and