Chapter 6 Company-Centric B2B and E-Procurement. © Prentice Hall 20042 Concepts, Characteristics,...

Chapter 6Chapter 6

Company-Centric B2BCompany-Centric B2B

and E-Procurementand E-Procurement

© Prentice Hall 2004© Prentice Hall 2004 22

Concepts, Characteristics, Concepts, Characteristics, and Models of B2B EC and Models of B2B EC

Basic B2B conceptsBasic B2B conceptsBusiness-to-business e-commerce Business-to-business e-commerce (B2B EC):(B2B EC): Transactions between Transactions between businesses conducted electronically businesses conducted electronically over the Internet, extranets, over the Internet, extranets, intranets, or private networks; also intranets, or private networks; also known as known as eB2B eB2B ((electronic B2Belectronic B2B) or ) or just just B2BB2B



(cont.)(cont.)



(cont.)(cont.)B2B characteristics

Parties to the transactionOnline intermediary:Online intermediary: An online An online third party that brokers a third party that brokers a transaction online between a buyer transaction online between a buyer and a seller; can be virtual or click-and a seller; can be virtual or click-and-mortarand-mortar



(cont.)(cont.)Types of transactionsTypes of transactions

Spot buying:Spot buying: The purchase of goods The purchase of goods and services as they are needed, and services as they are needed, usually at prevailing market pricesusually at prevailing market prices

Strategic sourcingStrategic sourcing: : Purchases Purchases involving long-term contracts that involving long-term contracts that are usually based on private are usually based on private negotiations between sellers and negotiations between sellers and buyersbuyers


B2B Characteristics B2B Characteristics (cont.)(cont.)

Types of materialsTypes of materialsDirect materials:Direct materials: Materials used in Materials used in the production of a product (e.g., the production of a product (e.g., steel in a car or paper in a book)steel in a car or paper in a book)

Indirect materials:Indirect materials: Materials used to Materials used to support production (e.g., office support production (e.g., office supplies or light bulbs)supplies or light bulbs)

MROs (maintenance, repairs, and MROs (maintenance, repairs, and operations):operations): Indirect materials used Indirect materials used in activities that support productionin activities that support production



(cont.)(cont.)Direction of tradeDirection of trade

Vertical marketplaces:Vertical marketplaces: Markets that Markets that deal with one industry or industry deal with one industry or industry segment (e.g., steel, chemicals)segment (e.g., steel, chemicals)

Horizontal marketplaces:Horizontal marketplaces: Markets Markets that concentrate on a service, that concentrate on a service, material, or a product that is used material, or a product that is used in all types of industries (e.g., in all types of industries (e.g., office supplies, PCs)office supplies, PCs)



(cont.)(cont.)Basic B2B transaction types

Sell-sideOne seller to many buyers

Buy-sideOne buyer from many sellers

ExchangesMany sellers to many buyers

Collaborative commerceCommunication and sharing of information, design, and planning among business partners



(cont.)(cont.)



(cont.)(cont.)One-to-many and many-to-one: company-centric transactions

Company-centric EC:Company-centric EC: E-commerce that E-commerce that focuses on a single company’s buying focuses on a single company’s buying needs (many-to-one, or buy-side) or needs (many-to-one, or buy-side) or selling needs (one-to-many, or sell-side)selling needs (one-to-many, or sell-side)

Private e-marketplaces:Private e-marketplaces: Markets in which Markets in which the individual sell-side or buy side the individual sell-side or buy side company has complete control over company has complete control over participation in the selling or buying participation in the selling or buying transactiontransaction



(cont.)(cont.)Many-to-many: exchanges

Exchanges (trading communities or Exchanges (trading communities or tradingtrading exchanges):exchanges): Many-to-many e- Many-to-many e-marketplaces, usually owned and run by a marketplaces, usually owned and run by a third party or a consortium, in which many third party or a consortium, in which many buyers and many sellers meet buyers and many sellers meet electronically to trade with each other; electronically to trade with each other; also called also called trading communities trading communities or or trading trading exchangesexchanges

Public e-marketplaces: Third-party Public e-marketplaces: Third-party exchanges that are open to all interested exchanges that are open to all interested parties (sellers and buyers)parties (sellers and buyers)



(cont.)(cont.)Collaborative commerceCollaborative commerce

Communication, design, planning, and information sharing among business partners



(cont.)(cont.)Supply chain relationships in B2BSupply chain relationships in B2B

Supply chain process consists of a number of interrelated subprocesses and roles

acquisition of materials from suppliersprocessing of a product or servicepackaging it and moving it to distributors and retailerspurchase of a product by the end consumer



(cont.)(cont.)B2B private e-marketplace provides a company with high supply chain power and high capabilities for online interactionsJoining a public e-marketplace provides a business with high buying and selling capabilities, but will result in low supply chain powerCompanies that choose an intermediary to do their buying and selling will be low on both supply chain power and buying/selling capabilities



(cont.)(cont.)Virtual services industries in B2BVirtual services industries in B2B

Travel servicesReal estateFinancial servicesOnline stock tradingOnline financingOther online services



(cont.)(cont.)Benefits of B2BBenefits of B2B

Eliminates paper and reduces administrative costs.Expedites cycle timeLowers search costs and time for buyersIncreases productivity of employees dealing with buying and/or selling Reduces errors and improves quality of services.Reduces inventory levels and costsIncreases production flexibility, permitting just-in-time deliveryFacilitates mass customizationIncreases opportunities for collaboration


One-to-Many: One-to-Many: Sell-Side MarketplacesSell-Side Marketplaces

Sell-side e-marketplace:Sell-side e-marketplace: A Web-based A Web-based marketplace in which one company marketplace in which one company sells to many business buyers from e-sells to many business buyers from e-catalogs or auctions, frequently over catalogs or auctions, frequently over an extranetan extranetThree major direct sales methods:1. selling from electronic catalogs2. selling via forward auctions 3. one-to-one selling


One-to-Many: One-to-Many: Sell-Side Marketplaces Sell-Side Marketplaces

(cont.)(cont.)



(cont.)(cont.)B2B sellersB2B sellers

click-and-mortar manufacturers or intermediaries, usually distributors or wholesalers

Customer serviceonline sellers can provide sophisticated customer services



(cont.)(cont.)Configuration and customizationConfiguration and customization

customize productsget price quotessubmit orders



(cont.)(cont.)Major benefits of direct sales are:

Lower order-processing costs and less paperworkA faster ordering cycleFewer errors in ordering and product configurationLower search costs of products for buyers Lower search costs of finding buyers for sellersSellers can advertise and communicate onlineLower logistics costs Ability to offer different catalogs and prices to different customers


Selling via AuctionsSelling via Auctions

Using auctions on Using auctions on the sell sidethe sell side

Revenue generationCost savingsIncreased page viewsMember acquisition and retention


Selling via Auctions Selling via Auctions (cont.)(cont.)

Selling from the company’s own Selling from the company’s own sitesite

The company will have to pay for infrastructure and operate and maintain the auction siteIf then company already has an electronic marketplace for selling from e-catalogs, the additional cost may not be too high


Selling via Auctions Selling via Auctions (cont.)(cont.)

Using intermediariesUsing intermediariesAn intermediary may conduct private auctions for a seller, either from the intermediary’s or the seller’s siteA company may choose to conduct auctions in a public marketplace, using a third-party hosting company


Using Intermediaries in Using Intermediaries in Auctions Auctions (cont.)(cont.)

Benefits of using intermediariesBenefits of using intermediariesno additional resources are requiredauction set up to show the branding (company name) of the merchant rather than the intermediary’s nameintermediary does the work of:

controlling data on Web traffic, page views, and member registrationsetting all the auction parameters (transaction fee structure, user interface, and reports)integrating the information flow and logistics


Sell-Side CasesSell-Side Cases

Direct sales: Cisco SystemsDirect sales: Cisco SystemsWorld’s leading producer of routers, switches, and network interconnection servicesCisco’s portal began with technical support for customers and developed into one of the world’s largest direct sales EC sites


Sell-Side Cases Sell-Side Cases (cont.)(cont.)

Customer serviceCustomer serviceApplications offered:

software downloadsdefect trackingtechnical advice

85% of customer service inquiries and 95% of software updates are delivered online

Online ordering by customersProvides online pricing and configuration tools to customers 98% are now placed through Cisco Connection Online (CCO)

Order statusOrder status



BenefitsBenefitsReduced operating costs for order takingEnhanced technical support and customer serviceReduced technical support staff costReduced software distribution costsFaster service



Sales through an intermediary: Sales through an intermediary: Marshall Industries Marshall Industries (now (now Avnet.com)Avnet.com)

large distributor of electronics componentsknown for its innovative use of information technologies and the Web



Marshall Industries EC initiativesMarshall Industries EC initiativesMarshallNet

intranet that supports salespeople in the field via wireless devices and portable PCs

Marshall on the Internet (portal)B2B portal for customers that offers information, ordering, and tracking capabilities

Strategic European Internetstrategic partner in Europe that offers MarshallNet in 17 languages



Marshal IndustriesElectronic Design Center

online configuration tool; provides technical specifications; offers simulation capabilities for making virtual components

PartnerNetcustomized Web pages for major customers and suppliers

NetSeminar Education and News Portal

online training tool; brings suppliers and customers together for live interactions



B2B intermediary: Boeing’s parts marketplace

World’s largest maker of airplanes for commercial and military customersMajor 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 EDIBegan using traditional EDI



1996, Boeing introduced its PART page on the InternetCustomers around the world could

check parts availability and pricingorder partstrack order status

Less than a year later, about 50 percent of Boeing’s customers used PART for parts orders and customer service inquiries



Boeing OnLine Data (BOLD) enables mechanics and technicians at the airport to access the technical manuals they need for repairsThese manuals are now available in digital form, and mechanics and technicians can access them via wireline or wireless devices


One-from-Many: Buy-Side One-from-Many: Buy-Side Marketplaces and E-Marketplaces and E-

ProcurementProcurement

Buy-side e-marketplace:Buy-side e-marketplace: A A corporate-based acquisition site corporate-based acquisition site that uses reverse auctions, that uses reverse auctions, negotiations, group purchasing, negotiations, group purchasing, or any other e-procurement or any other e-procurement methodmethod


One-from-Many: Buy-Side One-from-Many: Buy-Side Marketplaces and E-Procurement Marketplaces and E-Procurement

(cont.)(cont.)

Procurement methodsProcurement methodsBuy from manufacturers, wholesalers, or retailers from their catalogs, and possibly by negotiationBuy from the catalog of an intermediary that aggregates sellers’ catalogs or buy at industrial mallsBuy from an internal buyer’s catalog in which company-approved vendors’ catalogs, including agreed upon prices, are aggregated



(cont.)(cont.)Conduct bidding or tendering (a reverse auction) in a system where suppliers compete against each otherBuy at private or public auction sites in which the organization participates as one of the buyersJoin a group-purchasing system that aggregates participants’ demand, creating a large volumeCollaborate with suppliers to share information about sales and inventory, so as to reduce inventory and stock-outs and enhance just-in-time delivery



(cont.)(cont.)

Inefficiencies in traditional Inefficiencies in traditional procurement managementprocurement management

Procurement management:Procurement management: The The coordination of all the activities coordination of all the activities relating to purchasing goods and relating to purchasing goods and services needed to accomplish the services needed to accomplish the mission of an organizationmission of an organizationMaverick buying:Maverick buying: Unplanned purchases Unplanned purchases of items needed quickly, often at non-of items needed quickly, often at non-pre-negotiated, higher pricespre-negotiated, higher prices



(cont.)(cont.)

e-procurement:e-procurement: The electronic The electronic acquisition of goods and services acquisition of goods and services for organizationsfor organizations


Benefits of E-ProcurementBenefits of E-Procurement

Benefits of e-procurementBenefits of e-procurementIncreasing the productivity of purchasing agentsLowering purchase prices through product standardization and consolidation of purchasesImproving information flow and management


Benefits of E-Procurement Benefits of E-Procurement (cont.)(cont.)

Minimizing the purchases made from noncontract vendors. Improving the payment processEstablishing efficient, collaborative supplier relationsEnsuring delivery on time, every timeReducing the skill requirements and training needs of purchasing agentsReducing the number of suppliersStreamlining the purchasing process, making it simple and fast


Benefits of E-Procurement Benefits of E-Procurement (cont.)(cont.)

Reducing the administrative processing cost per orderImproved sourcingIntegrating the procurement process with budgetary control in an efficient and effective wayMinimizing human errors in the buying or shipping processMonitoring and regulating buying behavior



(cont.)(cont.)


Implementing E-ProcurementImplementing E-Procurement

Implementing e-procurement—mImplementing e-procurement—major e-procurement implementation issues

Fitting e-procurement into the company EC strategyReviewing and changing the procurement process itselfProviding interfaces between e-procurement with integrated enterprisewide information systems such as ERP or supply chain management (SCM)


Implementing E-Procurement Implementing E-Procurement (cont.)(cont.)

Coordinating the buyer’s information system with that of the sellers; sellers have many potential buyersConsolidating the number of regular suppliers to a minimum and assuring integration with their information systems, and if possible with their business processes


Buy-Side E-Marketplaces: Buy-Side E-Marketplaces: Reverse AuctionsReverse Auctions

One of the major methods of e-procurement is through reverse auctions (tendering or bidding model)

request for quote (RFQ):request for quote (RFQ): The The “invitation” to participate in a “invitation” to participate in a tendering (bidding) systemtendering (bidding) system

The reverse auction method is the most common model for large MRO purchases as it provides considerable savings


Reverse Auctions Reverse Auctions (cont.)(cont.)

Conducting reverse auctionsConducting reverse auctionsThousands of companies use the reverse auction modelThey may be administered from a company’s Web site or from an intermediary’s siteThe bidding process may last a day or moreBidders may bid only once, but bidders can usually view the lowest bid and rebid several times


Reverse AuctionsReverse AuctionsA Pioneer: General Electric’s A Pioneer: General Electric’s

TPNTPNProcurement revolution at GE—Trading Procurement revolution at GE—Trading Process Network (TPN) Post

With this online system, the sourcing department received the requisitions electronically from its internal customers and sent off a bid package to suppliers around the world via the InternetThe system automatically pulled the correct drawings and attached them to the electronic requisition forms


Reverse AuctionsReverse AuctionsA Pioneer: General Electric’s TPNA Pioneer: General Electric’s TPN

(cont.)(cont.)Benefits of TPNBenefits of TPN

labor involved in the procurement process declined by 30%cut by 50% staff involved in the procurement process and redeployed those workers into other jobsreduced the number of days to complete a contract by halfinvoices were automatically reconciled with purchase ordersprocurement departments around the world were able to share information about their best suppliers


Reverse Auction: Reverse Auction: The ProcessThe Process


Reverse AuctionsReverse Auctions A Pioneer: General Electric’s TPN A Pioneer: General Electric’s TPN

(cont.)(cont.)

GXS Express Marketplaces is an expanded system that makes it a public posting place for other buyers

Suppliers gain instant access to global buyersDramatically improve the productivity of their bidding and sales activitiesIncreased sales volumeExpanded market reach and ability to find new buyersLower administration costs Shorter requisition cycle timeImproved sales staff productivityStreamlined bidding process


Other E-Procurement Other E-Procurement MethodsMethods

Internal marketplace: The aggregated catalogs of all approved suppliers combined into a single internal electronic catalog


Internal Marketplace Internal Marketplace (cont.)(cont.)

Benefits of internal marketplacesBenefits of internal marketplacescorporate buyers quickly find what they want, check availability and delivery times, and complete an electronic requisition form

reduce number of reduce number of regular supplierseasy financial controls


Internal Marketplace: Internal Marketplace: Desktop PurchasingDesktop Purchasing

Desktop purchasing:Desktop purchasing: Direct purchasing Direct purchasing from internal marketplaces without the from internal marketplaces without the approval of supervisors and without approval of supervisors and without intervention of a procurement intervention of a procurement department department

Desktop purchasing systems: Desktop purchasing systems: Software Software that automates and supports purchasing that automates and supports purchasing operations for nonpurchasing operations for nonpurchasing professionals and casual end usersprofessionals and casual end users


Other E-Procurement Other E-Procurement Methods Methods (cont.)(cont.)



Industrial mallsIndustrial mallsDistributors that aggregate products from hundreds or thousands of suppliers in one place

Horizontal—carrying MRO (nonproduction) materials for use in a variety of industriesVertical—carrying products used by one industry but at various segments of the supply chain



E-auctionsE-auctionssellers are increasingly motivated to sell surpluses and even regular products via auctionse-auctions provide an opportunity to buyers to find inexpensive or unique items fairly quickly



Group purchasing:Group purchasing: The The aggregation of orders from aggregation of orders from several buyers into volume several buyers into volume purchases so that better prices purchases so that better prices can be negotiatedcan be negotiated



Internal aggregation—cInternal aggregation—companywide orders are aggregated using the Web and replenished automatically

External aggregation—External aggregation—provide SMEs with better prices, selection, and services by aggregating demand online and then either negotiating with suppliers or conducting reverse auctions



Purchasing direct goodsPurchasing direct goodsE-purchasing direct goods allows buyers to:

get them fasterreduce the unit costreduce inventoriesavoid shortages of materialsexpedite their own production processes



Electronic barteringElectronic barteringBartering exchange:Bartering exchange: An An intermediary that links parties in a intermediary that links parties in a barter; a company submits its barter; a company submits its surplus to the exchange and surplus to the exchange and receives points of credit, which can receives points of credit, which can be used to buy the items that the be used to buy the items that the company needs from other company needs from other exchange participantsexchange participants


Infrastructure for B2BInfrastructure for B2B

Major infrastructures needed for B2B marketplaces

Telecommunications networks and protocolsServer(s) for hosting the databases and the applicationsSoftware for various activities for executing the sell-side activities, buy-side activities, PRM, and building a storefrontSecurity for hardware and software



Electronic data interchange (EDI):Electronic data interchange (EDI): The electronic transfer of The electronic transfer of specially formatted standard specially formatted standard business documents, such as business documents, such as bills, orders, and confirmations bills, orders, and confirmations sent between business partnerssent between business partners



Value-added networks (VANs):Value-added networks (VANs): Private, third-party managed Private, third-party managed networks that add networks that add communications services and communications services and security to existing common security to existing common carriers; used to implement carriers; used to implement traditional EDI systemstraditional EDI systems



Internet-based (Web) EDI:Internet-based (Web) EDI: EDI that EDI that runs on the Internet and is widely runs on the Internet and is widely accessible to most companies, accessible to most companies, including SMEsincluding SMEs



IntegrationIntegration with existing internal infrastructure and applications

EC applications of any kind need to be connected to the existing internal information systems

Integration with business partnersEC can be integrated more easily with internal systems than with external ones



The role of standards and XML in B2B integration

XML (eXtensible Markup Language):XML (eXtensible Markup Language): Standard (and its variants) used to Standard (and its variants) used to improve compatibility between the improve compatibility between the disparate systems of business disparate systems of business partners by defining the meaning of partners by defining the meaning of data in business documentsdata in business documents



XML can overcome EDI barriers for three reasons:

1. XML is a flexible language, therefore it expands the rigid ranges of EDI

2. Message content can be easily read and understood by people using standard browsers

3. XML-based technologies require less-specialized skills

Chapter 6 Company-Centric B2B and E-Procurement. © Prentice Hall 20042 Concepts, Characteristics,...

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