Copyright © 2010 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc. Slide 9-1 ELC 200...

Copyright © 2010 Pearson Education, Inc.Copyright © 2009 Pearson Education, Inc. Slide 9-1

ELC 200Day 22

Agenda

Questions? Guidelines for final paper posted

Due Dec 14 @ 10:00 AM 20% of final grade

Assignment 7 corrected 5 A’s, 7 B’s, 1 C and 2 non-submits

Assignment 8 posted ELC 200 assignment 8.pdf

Optional Assignment 9 Posted Course Evaluations Finish discussion on Social Networks and Online Communities Begin discussion B2B eCommerce

Rest of Semester

Nov 29 Finish Chap 11 Start Chap 12

Dec 2 Assignment 8 Due Finish Chap 12

Dec 6 Chap 12 or Free Day

Dec 9 Quiz 3 Optional assignment 9

Due Drop lowest assignment

grade Dec 14 @ 10 AM

Ecommerce initiative papers and presentations due.

Copyright © 2010 Pearson Education, Inc. Slide 9-3


Chapter 11Social Networks, Auctions, and Portals

Copyright © 2010 Pearson Education, Inc.

Benefits of Auctions Liquidity Price discovery Price transparency Market efficiency Lower transaction costs Consumer aggregation Network effects Market maker benefits: no inventory or

fulfillment activitiesSlide 11-5


Risks and Costs of Auctions for Consumers and Businesses

Delayed consumption costs Monitoring costs

Possible solutions include: Fixed pricing Watch lists Proxy bidding

Equipment costs Trust risks

Possible solution—rating systems Fulfillment costs

Slide 11-6


Internet Auction Basics Different from traditional auctions

Last much longer (usually a week) Variable number of bidders who come and go from auction

arena

Market power and bias in dynamically priced markets Neutral: number of buyers and sellers is few or equal Seller bias: few sellers and many buyers Buyer bias: many sellers and few buyers

Slide 11-7


Bias in Dynamically Priced Markets

Slide 11-8

Figure 11.4, Page 735


Internet Auction Basics Price allocation rules

Uniform pricing rule: multiple winners who all pay the same price

Discriminatory pricing rule: winners pay different amount depending on what they bid

Public vs. private information Prices bid may be kept secret

Bid rigging Open markets

Price matching

Slide 11-9


Types of Auctions English auctions:

Single item up for sale to single seller Highest bidder wins

Traditional Dutch auction: Uses a clock that displays starting price Clock ticks down price until buyer stops it Fixed perishable quantity, intent is to clear the market

Dutch Internet auction: Public ascending price, multiple units Final price is lowest successful bid, which sets price for all higher bidders Intent is to clear the market

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Types of Auctions Name your own price auctions

Users specify what they are willing to pay for goods or services and multiple providers bid for their business

Prices do not descend and are fixed Group buying auctions (demand aggregators)

Group buying of products at dynamically adjusted discount prices based on high volume purchases

Two principles1. Sellers more likely to offer discounts to buyers purchasing in volume2. Buyers increase their purchases as prices fall

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Types of Auctions Professional service auctions

Example: Elance.com

Auction aggregators (mega auctions) Use Web crawlers to search thousands of Web auction sites

and accumulate information on products, bids, auction duration, etc.

Unlicensed aggregators opposed by eBay

Most have been closed down by legal actions

Slide 11-12


Table 11.7, Page 742


Seller and Consumer Behavior at Auctions

Seller profit: arrival rate, auction length, and number of units at auction

Auction prices not necessarily the lowest Unintended results of participating in auctions:

Winner’s regret Seller’s lament Loser’s lament

Consumer trust an important motivating factor in auctions

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Auction Profits

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SOURCE: Vakrat and Seidmann, 1998.Figure 11.5, Page 744


When Auction Markets Fail: Fraud and Abuse in Auctions

Markets fail to produce socially desirable outcomes in four situations: Information asymmetry, monopoly power, public goods,

and externalities.

Auction markets prone to fraud Most common: failure to deliver, failure to pay

In 2009, 25% of Internet fraud complaints concern online auctions

Slide 11-16


Portals Most frequently visited sites on Web Original portals were search engines

As search sites, attracted huge audiences

Today provide: Navigation of the Web Commerce Content (own and others’)

Compete on reach and unique visitors Enterprise portals

Help employees find important organizational content

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Top 5 Portal/Search Engines in the United States

Slide 11-18

SOURCE: comScore, 2009; author’s estimates.Figure 11.5, Page 755


Types of Portals General purpose portals:

Attempt to attract very large general audience Retain audience by providing in-depth vertical content channels E.g., Yahoo, MSN

Vertical market portals: Attempt to attract highly focused, loyal audiences with specific

interest in: Community (affinity group); e.g., iVillage.com Focused content; e.g., ESPN.com

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Two General Types of Portals: General Purpose and Vertical Market Portals


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Portal Business Models ISP services (AOL, MSN)

Provide Web access, e-mail for monthly fee General advertising revenue

Charge for impressions delivered Tenancy deals

Fixed charge for number of impressions, exclusive partnerships, “sole providers”

Commissions on sales Sales at site by independent providers

Subscription fees Charging for premium content

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Revenue per Customer and Market Focus


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Chapter 12B2B E-commerce: Supply Chain Management and Collaborative Commerce


Volkswagen Builds Its B2B Net Marketplace

Class Discussion Why didn’t Volkswagen want to use a more open or

public electronic exchange for its parts supply? Why didn’t it join an industry consortium such as Covisint?

What kinds of services are provided by VWGroupSupply?

What is eCAP and who benefits from its use? Do you think suppliers are disadvantaged by this B2B

marketplace?

Slide 12-24


Trends in B2B E-commerce Firms more comfortable with Internet security, payments,

helping expand use of B2B channels Growing realization that most important benefits are not

low costs of materials, but gains in supply chain efficiency, better spend management, improved business process

Decline of independent Net marketplaces Rapid growth in collaborative commerce B2B applications

based on private networks Continued consolidation in Net marketplace and software

vendor markets

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Evolution of the Use of Technology Platforms in B2B Commerce


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Defining B2B Commerce Before Internet:

B2B transactions called trade or procurement process

Total inter-firm trade: Total flow of value among firms

B2B commerce: All types of computer-enabled inter-firm trade

B2B e-commerce: The portion of B2B commerce enabled by the Internet

Slide 12-27


Growth of B2B Commerce 2002–2013

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SOURCES: U.S. Census Bureau, 2009a, b; authors’ estimates.Figure 12.2, Page 776


The Growth of B2B E-commerce 2009–2013: B2B e-commerce will grow from 30%

to 35% of total inter-firm trade Electronic marketplaces will not be dominant form

of B2B e-commerce Private industrial networks continue to play

dominant role in B2B Non-EDI B2B e-commerce most rapidly growing

type of e-commerce EDI still large but will decline over time

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Industry Forecasts Not all industries similarly affected by B2B

e-commerce Not all industries would benefit equally Factors influencing move to e-commerce

Significant utilization of EDI Large investments in IT and Internet infrastructure

E.g., aerospace and defense, computer, and industrial equipment industries

Market concentrated on purchasing and/or selling E.g., energy, chemical industries

Slide 12-31


Potential Benefits of B2B E-commerce Lower administrative costs

Lower search costs for buyers Reduced inventory costs

Increasing competition among suppliers (increasing price transparency)

Reducing inventory carried

Lower transaction costs: Eliminating paperwork Automating parts of procurement process

Slide 12-32


Potential Benefits Increased production flexibility by ensuring just-in-

time parts delivery Improved quality of products by increasing

cooperation among buyers and sellers Decreased product cycle time by sharing of designs

and production schedules Increased opportunities for collaborating with

suppliers and distributors Greater price transparency

Slide 12-33


The Procurement Process and the Supply Chain

Procurement process: The way firms purchase materials they need to make

products Supply chain:

Firms that purchase goods, their suppliers, and their suppliers’ suppliers, and relationships and processes involved

Steps in procurement process: Deciding who to buy from and what to pay Completing transaction

Slide 12-34


The Procurement Process

Slide 12-35



Types of Procurement Firms purchase two types of goods

1. Direct goods: integrally involved in production process2. Indirect goods: all goods not directly involved in production

process (MRO goods) Firms use two methods to purchase

1. Contract purchasing: Involves long-term written agreements to purchase specified products,

with agreed-upon terms and quality

2. Spot purchasing: Involves purchase of goods based on immediate needs in larger

marketplaces that involve many suppliers

Slide 12-36


Types of Procurement Procurement is highly information intensive

and labor intensive—3.3 million U.S. workers Use of Internet can simplify process and

reduce search, research, negotiating costs Multi-tier supply chain

Complex series of transactions between firm and thousands of suppliers

Slide 12-37


The Multi-Tier Supply Chain

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The Role of Existing Legacy Computer Systems

Legacy computer systems Generally older mainframe and minicomputer systems

used to manage key business processes within firm MRP systems (materials requirements planning)

Enable firms to predict, track, and manage parts of complex manufactured goods

ERP systems (enterprise resource planning) More sophisticated MRP systems that include human resources

and financial components

Slide 12-39


Trends in Supply Chain Management and Collaborative

Commerce Supply chain management (SCM): Wide variety of activities that firms and industries use to

coordinate key players in their procurement process

Major developments in SCM Supply chain simplification Electronic data interchange Supply chain management systems Collaborative commerce

Slide 12-40


Supply Chain Simplification Essential for just-in-time production models Typically achieved by:

Working with strategic group of suppliers to reduce product and administrative costs, while improving quality

Purchasing under long-term contracts that contain specified quality, cost, and timing goals

May involve Joint product development and design Integration of computer systems Tight coupling

Slide 12-41


Electronic Data Interchange (EDI) Broadly defined communications protocol for

exchanging documents among computers Stage 1: 1970s–1980s

Document automation

Stage 2: Early 1990s Document elimination

Stage 3: Mid-1990s Move toward continuous replenishment/access model

Today: EDI provides for exchange of critical business information between

computer applications supporting wide variety of business processes

Slide 12-42


The Evolution of EDI as a B2B Medium

Slide 12-43



Supply Chain Management Systems Continuously link activities of buying, making, and

moving products from suppliers to purchasing firms

Integrates demand side of business equation by including order entry system in the process

With SCM system and continuous replenishment, inventory is eliminated and production begins only when order is received

Hewlett Packard’s SCM system: elapsed time from order entry to shipping PC is 48 hours.

Slide 12-44


Supply Chain Management Systems


Slide 12-45


Insight on TechnologyRFID Autoidentification:

Making Your Supply Chain VisibleClass Discussion

Why is RFID an improvement over bar codes? How does RFID work? Why is Wal-Mart supporting RFID? What impact will widespread adoption of RFID

have on Internet B2B commerce?

Slide 12-46


Collaborative Commerce Use of digital technologies enabling organizations to

collaboratively design, develop, build, and manage products through life cycles

Direct extension of SCM systems and supply chain simplification

Involves move from transaction focus to relationship focus among supply chain participants

Unlike EDI, more like an interactive teleconference among members of supply chain

Example: Group Dekko

Slide 12-47


Elements of a Collaborative Commerce System


Slide 12-48


Two Main Types of Internet-Based B2B Commerce

1. Net marketplaces: Bring together potentially thousands of sellers and buyers in single

digital marketplace operated over Internet Transaction-based Support many-to-many as well as one-to-many relationships

2. Private industrial networks: Bring together small number of strategic business partner firms that

collaborate to develop highly efficient supply chains Relationship-based Support many-to-one and many-to-few relationships Largest form of B2B e-commerce

Slide 12-49


Two Main Types of Internet-Based B2B Commerce


Slide 12-50


Net Marketplaces Various ways to classify Net marketplaces:

Pricing mechanism, nature of market served, ownership

By business functionality What businesses buy (direct vs. indirect goods) How business buy (spot purchasing vs. long-term sourcing) Four main types

1. E-distributors2. E-procurement networks3. Exchanges4. Industry consortia

Slide 12-51


Pure Types of Net Marketplaces


Slide 12-52


Table 12.2, Page 791

Slide 12-53


E-distributors Most common type of Net marketplace Electronic catalogs representing products of thousands

of direct manufacturers Typically independently owned intermediaries Offer industrial customers single source to purchase

indirect goods on spot basis Typically horizontal—serve many different industries

with products from many different suppliers Usually fixed price—discounts for large customers Example: W.W. Grainger

Slide 12-54


E-distributors


Slide 12-55


E-procurement Net Marketplaces Independently owned intermediaries Connect hundreds of suppliers of indirect goods Firms pay fees to join market Typically for long-term contractual purchasing of indirect

goods Revenues from transaction fees, licensing consultation

services and software, network fees Offer value chain management (VCM) services

Automation of entire procurement process on buyer side, automation of selling business processes on seller side

Many-to-many market Example: Ariba

Slide 12-56


E-procurement Net Marketplaces


Slide 12-57


Exchanges Independently owned online marketplaces Connect hundreds to thousands of suppliers and

buyers in dynamic, real-time environment Typically vertical markets—spot purchasing

requirements of large firms in single industry Charge commission fees on transaction Variety of pricing models used

Online negotiation, auction, RFQ, fixed Tend to be buyer-biased Suppliers disadvantaged by competition Many have failed due to low liquidity

Slide 12-58


Exchanges


Slide 12-59


Industry Consortia Industry-owned vertical markets Enable buyers to purchase direct inputs from limited set of

invited participants Emphasize long-term contractual purchasing, stable

relationships, creation of data standards Ultimate objective:

Unification of supply chains within entire industries through common network and computing platform

Make money from transaction and subscription fees Offer many different pricing mechanisms

Auctions, fixed prices, RFQs, negotiated Can force suppliers to use consortia’s networks

Slide 12-60


Industry Consortia


Slide 12-61


The Long-Term Dynamics of Net Marketplaces

Pure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement process

Consortia and exchanges beginning to work together in selected markets

E-distributors joining large e-procurement systems and industry consortia as suppliers

Movement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goods

Slide 12-62


Net Marketplace Trends


Slide 12-63


Insight on SocietyAre Net Marketplaces

Anti-Competitive Cartels?Class Discussion

How can Net marketplaces and private industrial networks reduce competition in the marketplace, drive up prices, and reduce variety in markets?

What is a monopsony, and how do Net marketplaces encourage the development of monopsonies?

How can Net marketplaces be used to exclude competitors from low priced markets?

Why do Net marketplaces inevitably lead to a single marketplace owner or provider?

Slide 12-64


Private Industrial Networks Private trading exchanges (PTXs) Web-enabled networks for coordination of trans-

organizational business processes (collaborative commerce) Direct descendant of EDI; closely tied to ERP systems Typically involve manufacturing and support industries Typically center around single, very large manufacturing firm that

sponsors network

Range in scope from single firm to entire industry Example: Procter & Gamble

Slide 12-65


Procter & Gamble’s Private Industrial Network


Slide 12-66


Characteristics of Private Industrial Networks

Objectives include: Efficient purchasing and selling business processes industry-wide Industry-wide resource planning to supplement enterprise-wide resource

planning Increasing supply chain visibility Closer buyer–supplier relationships Operating on global scale Reducing industry risk by preventing imbalances of supply and demand

Focus on continuous business process coordination Typically focus on single sponsoring company that

“owns” the network

Slide 12-67


Insight on BusinessWal-Mart Develops a Private

Industrial NetworkClass Discussion

What is Wal-Mart’s Retail Link system and how has it changed since the early 1990s?

Why is Wal-Mart still using EDI-based systems? Why won’t Wal-Mart join in an industry-backed

system? Could Wal-Mart’s plan to allow suppliers to directly

sell online to consumers be a threat to Amazon?

Slide 12-68


Private Industrial Networks and Collaborative Commerce

Forms of collaboration: Collaborative resource planning, forecasting, and replenishment

(CPFR): Working with network members to forecast demand, develop production

plans, and coordinate shipping, warehousing, and stocking activities to ensure that retail and wholesale shelf space is replenished with just the right amount of goods

Demand chain visibility Marketing coordination and product design

Can ensure products fulfill claims of marketing Feedback enables closed loop marketing

Slide 12-69


Pieces of the Collaborative Commerce Puzzle


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Implementation Barriers Concerns about sharing of proprietary,

sensitive data Integrating private industrial networks into

existing ERP systems and EDI networks difficult, expensive

Requires change in mindset and behavior of employees and suppliers All participants lose some independence

Slide 12-71


Industry-Wide Private Industrial Networks

Successful single firm networks adopted by entire industry

P&G system sold to IBM, re-sold to entire consumer products industry in the United States

ISYNC: manufacturers in alcohol and beverage, automotive, entertainment, grocery, healthcare, office supplies industries

Agentrics: founded by world’s largest retailers; focuses on auctions, services for retail industry

Slide 12-72


An Industry-Wide Private Industrial Network


Slide 12-73


Long-Term Dynamics of Private Industrial Networks

As large firms become more accustomed to working closely with both supply chain partners and distributors, they will seek to push the boundaries of their networks to extend across the industry as a whole, to other industries, and to elaborate new roles for themselves and others.

Slide 12-74


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