Chapter 6

Company-Centric B2B

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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 intermediaries
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
Understand issues concerning the
implementation of company-centric B2B
Distinguish Internet-based EDI from
traditional EDI
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General Motors’ B2B Initiatives

EC initiatives—build-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

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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 auction—automated process
Internet “open bid”—many suppliers take
part
Job is awarded quickly
Price to GM significantly lower
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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

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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
Private—one-to-many mode
Public—many-to-many mode

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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 buying—determined by dynamic supply
and demand
Strategic sourcing—long term contracts

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 Figure 6-1
B2B Supply Chain

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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)
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 Concepts and Characteristics
of B2B EC (cont.)
Entities of B2B EC
Selling company—marketing management
perspective
Buying company—procurement
management perspective
Electronic intermediaries—optional third
party directory service provider (scope of
service may be extended to order
fulfillment)
Trading platforms—pricing and negotiation
protocol (auctions, reverse auctions)

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 Concepts and Characteristics
of B2B EC (cont.)
Entities of B2B EC (cont.)
Payment services—mechanism for
transferring money to sellers
Logistics providers—logistics to complete
transaction (packaging, storage, delivery)
Network platforms—Internet, VAN, intranet,
extranet
Protocols of communication—EDI or XML
Back-end integration—connecting to ERP
systems, databases, functional applications

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 Concepts and Characteristics
of B2B EC (cont.)

Information processed in B2B

Product Inventory
Customer Supply chain
Supplier Competitor
Product process Sales and marketing
Transportation Supply chain process
and performance

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 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
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 B2B Models

Company-centric models
Sell-side marketplace (one-to-many)
Buy-side marketplace (many-to-one)
Many-to-many marketplaces—the exchange
Buyers and sellers meet to trade
Trading communities
Trading exchanges
Exchanges

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 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
Vertical—one industry or industry section
Horizontal—service or product used in several
types of industries
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 B2B Models (cont.)

Virtual service industries in B2B

Travel and tourism services
Real estate
Electronic payments
Online stock trading
Online financing
Other online services

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 Figure 6-2
Sell-Side Marketplace Architecture

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Sell-Side Marketplaces:One-to-Many

Virtual sellers—Bigboxx.com.hk of Hong Kong

B2B office supply retailer services
Large corporate clients
Medium corporate clients
Small offices
Goal—sell products in various SE Asian countries
Offers more than 10,000 items
Uses more than 300 suppliers

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

Virtual sellers—Bigboxx.com.hk of Hong Kong

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

Virtual sellers—Bigboxx.com.hk of Hong

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

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 Sell-Side Marketplaces:
One-to-Many (cont.)
Virtual sellers—Bigboxx.com.hk of Hong
Kong (cont.)
Value-added services
Track status of order
Check stock availability
Promotions
Customized prices
Group accounts and central approval—for
businesses with multiple branches
Standing orders automatically activated
Large number of reports and data available
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 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 service—expanded to provide a
higher level of service than previously available
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 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 IBM
Intel Cisco
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 Sell-Side Marketplaces:
One-to-Many (cont.)

Direct sales from catalogs

Benefits
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

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

Direct sales from catalogs (cont.)

Limitations
Channel conflicts with distribution
systems
High cost when traditional EDI used
Large number of business partners is
needed to justify system

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Selling Side: Auctions and Other Models
Forward auctions—quick disposal of items
Revenue generation
Increased page views
Member acquisition and retention—bidding
transactions result in additional registered
members
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
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 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

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 Selling Side:
Auctions and Other Models (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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 Sell-Side Case:
CISCO Connection Online (CCO)

Benefits—saves the company $363 million

per year in:
Technical support
Human resources
Software distribution
Marketing material

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Cisco Connection Online (CCO) (cont.)

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

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Cisco Connection Online (CCO) (cont.)

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

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 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 34
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 Sell-Side Intermediaries (cont.)

Marshall Industries—a subsidiary or

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

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Sell-Side Intermediaries (cont.)

Marshall Industries—a 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

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Sell-Side Intermediaries (cont.)

Boeing’s 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

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 Sell-Side Intermediaries (cont.)

Boeing’s 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

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Sell-Side Intermediaries (cont.)

Boeing’s 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

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Sell-Side Intermediaries (cont.)
Boeing’s 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
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Sell-Side Intermediaries (cont.)

Boeing’s PART
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: 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
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 Figure 6-3
A Traditional Purchasing Process Flow

Source: ariba.com, February 2001.

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 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 buyer’s
site
Group purchasing
Others
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 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
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 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

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 Figure 6-4
Buy-Side B2BMarketplace Architecture

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

Direct vs. indirect sourcing

Tools to automate purchasing goods
Direct or mission critical
80% of manufacturer’s expenditure
Long-term relationship with vendor of
known quality goods
Tight integration with suppliers along
supply chain
Indirect—use of public exchanges for
indirect sourcing

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 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
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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
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Buy Side: Reverse Auctions (cont.)

Web-based reverse auction process

Benefits:
Electronic process is faster
Administratively much less expensive
Enables location of cheapest possible
products

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 Procurement Revolution at GE
TPN at GE Lighting Division
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
Evaluate and award bids same day
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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
Redeployment
60% of the staff
Sourcing department concentrates on
strategic activities instead of paperwork,
etc.
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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

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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 bids
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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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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

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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
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 Group Purchasing

Group purchasing—orders 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
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 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
Benefits:
Faster than manually
Easier to match
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Collaborative Commerce (C-Commerce)

Web-based systems used between

and among suppliers for:
Communication
Design
Planning
Information sharing
Information discovery

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 Collaborative Commerce
(C-Commerce) (cont.)

Webcore construction goes online with its

partners

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 Figure 6-6
Suppliers Extranet: Hudson Dayton Case

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 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
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 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 Factories
Distributors Customers
Overseas
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 Collaborative Commerce
(C-Commerce) (cont.)

Other examples of c-commerce

Tricon Restaurant International—global brand
marketing management
RE/MAX—real estate franchiser improved
communication and collaboration between
independent owners
Marriott International—links corporations,
franchising partners, suppliers, customers
Nygard of Canada—interorganizational collaboration
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 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)

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 B2B Infrastructure (cont.)

Software for CRM

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

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 Extranet and EDI

Secure interorganizational networks

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

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 Integration

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

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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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 Figure 6-7
Intelligent Agent-Based Commerce

B2B
Agents

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

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 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
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 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

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 Implementation Issues (cont.)

Implementing e-procurement
Fit e-procurement into EC strategy
Review and change procurement process itself
If ERP or SCM is in place—integrate e-procurement,
If not in place—BPR before implementation
Coordinate buyer’s information system with seller’s

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 Managerial Issues

B2B marketing—sell-side marketplaces require

advertisement and incentives
Which models to use and when—need 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
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 Managerial Issues (cont.)

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

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 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
Auctions—both forward and reverse
Benefits are substantial
Implementation is relatively simple
Considerable flexibility in implementation
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 Managerial Issues (cont.)

E-procurement—critical success factors

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

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