Chapter 6
Business-to-Business
Electronic Commerce
© Prentice Hall, 2000
1
Trading Process Network (TPN)
Post in General Electric
General Electric (GE)
Its purchasing was inefficient, involved too many
administrative transactions
Factories at GE
Lighting division
used to send
hundreds of
Requisitions For
Quotations (RFQs) to
the corporate
sourcing department
each day for lowvalue machine parts.
For each requisition, the
accompanying blueprints
had to be requested from
storage, retrieved from
the vault, transported to
the processing site,
photocopied, folded,
attached to paper
requisition forms with
quote sheets, stuffed into
envelopes and mailed
out.
This process took at
least 7 days and was
so complex and timeconsuming that the
sourcing department
normally sent out bid
packages only to two
or three suppliers at
a time.
GE is conducting electronic bids, no paperwork
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Trading Process Network (TPN)
Post in General Electric (cont.)
Benefits of using TPN
60%of the staff involved in
It used to take 18-23 days to identify
procurement have been
suppliers, prepare a request for bid,
redeployed. The sourcing
negotiate a price and award the
department has at least 6-8 free
contract to a supplier. It now takes
days a month to concentrate on
9-11 days.
strategic activities rather than
With the transaction handled
on paperwork, photocopying
electronically from beginning to
and envelope stuffing it had to
end, invoices are automatically
do when the process was
reconciled with purchase orders,
manual.
reflecting any modifications that
Labor involved in procurement
happen along the way.
declined by 30%. At the same
GE Procurement departments
time, materials costs declined
across the world now share
5%-20% due to the ability to
information about their best
reach a wider base of suppliers
suppliers.
online.
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Supply Chain
Definition
All activities associated with the flow and
transformation of goods from raw materials to end users
Upstream
2nd Tier
Supplier
2nd Tier
Supplier
2nd Tier
Supplier
Internal
Distribution
Centers
1st Tier
Supplier
1st Tier
Supplier
Grain
Producer
Grain
Downstream
Customers
Assembly/
Manufacturing and
Packaging
Cereal
Processing
Facility
Packaged
Cereal
Packaging
Retailers
Distributor
Customers
Paperboard
Corrugate
Manufacturer
Labels
Store
Word
Lumber
Company
Label
Manufacturer
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Characteristics of B2B EC
Key Entities of B2B EC
Buying company with procurement management perspective
Selling company with marketing management perspective
Electronic Intermediary, an optional third party directory service
provider (the scope of service may be extended to order fulfillment)
Deliverer who can fulfill a just-in-time delivery
Network platform such as the Internet, VAN, intranet and extranet
Protocol of communication such as EDI and comparison
shopping possibly using software agents
Back-end information system possibly implemented using the
intranet and Enterprise Resource Planning (ERP) systems
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Characteristics of B2B EC (cont.)
Relationship with Electronic Marketing
Supplier-oriented marketing
Used to sell the company’s products and
services to business customers on the Internet
Electronic catalogs are basically the same as
that for B2C EC, but they may be customized
Using electronic auctions to liquidate surpluses
Relationship with Procurement Management
Purchasing company’s point of view : a medium of
achieving the goals of procurement management
Procurement management’s point of view : the
buyer-oriented market can be effective
Using a RFQ-bidding mechanism
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Characteristics of B2B EC (cont.)
Relationship with Electronic Intermediaries
Similar to the B2B electronic intermediaries, but
the customers are businesses
Also, special intermediaries for matching buyers
and sellers, bartering etc.
Relationship with intranet are very important
Relationship with extranets
A dedicated network between business partners
or a secured public network like the Internet
Implementing a virtually private network (VPN) to
improve internet security
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Models of B2B EC
Supplier-Oriented Market Place
Individual consumers and business buyers use
the same supplier-provided market place (May
pay different prices due to quantity discount)
Business
Customers
Consumers
Supplier’s
Electronic Mall
B2C E-commerce
Supplier’s
Products Catalog
Customer’s
Order Information
B2B E-Commerce
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Models of B2B EC (cont.)
Buyer-Oriented Market Place
Buyer opens a market on
its own server and
invites potential
Business
suppliers to bid on RFQs
Suppliers
Offer opportunity to
Buyer’s
committed suppliers
Electronic Mall
BUT as the number of
such sites increase, only
very big buyers can
Buyer’s
afford to fully utilize this
Suppliers’
Products
Bids, Information
approach
Catalog, RFQ
OVERCOME with the aid
of software agents
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Models of B2B EC (cont.)
Intermediary-Oriented Market Place
Establish an electronic intermediary company
Similar to an intermediary-based B2C mall; bring buyers
and suppliers (bidders) to one place
The corporate information systems need tight coupling
with the intermediary electronic mall
Business
Suppliers
Business
Customers
Intermediary’s
Electronic Mall
Customer’s
Order Information
Shared
Products Catalogs
Supplier’s
Product Information
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Procurement Management Using
B2B EC Platform
 Purchasing is now a strategic function, to increase profit
margins
 By automating and streamlining the laborious routine of the
purchasing function, purchasing professionals can focus on
more strategic purchases, achieving the following goals:
Reducing purchasing cycle time and cost
Enhancing budgetary control
Eliminating administrative errors
Increasing buyers’ productivity
Lowering prices through product standardization and
consolidation of purchases
Better information management;
e.g. supplier’s information and pricing information
Improving the payment process
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Case Study of Supplier-Oriented Market Place:
CISCO Connection Online
Customer Service— Cisco Connection online
Online Ordering— Internet Product Center builds
virtually all its products to order
Finding Order Status— gives the customers
tools to find answers to order status inquiries by
themselves
Benefits— save the company $363 million per
year from technical support, human resources,
software distribution and marketing material
The Future— expect online sales to grow more
than 60% of total volume in 1999
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Case Study of Customer-Oriented Market Place:
GE’s TPN Post
 Provides a chance for sellers to participate in the
bidding process of GE using the following procedure:
Buyers prepare bidding project information
Buyers post the bidding projects on the Internet
Buyers identify potential suppliers
Buyers invite suppliers to bid on projects
Suppliers download the project information from the
Internet
Suppliers electronically submit bids for projects
Buyers evaluate the suppliers’ bids and negotiate online
to achieve the ‘best deal’
Buyers accept the bid that best meets their requirements
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Case Study of Customer-Oriented Market Place:
GE’s TPN Post (cont.)
The benefits of joining GE TPN Post
As buyers
As Sellers
Identify and build partnerships with
Boost Sales
new suppliers worldwide
Expand market reach
Strengthen relationships and
Cut costs for sales and
streamline sourcing processes with
marketing activities
current business partners
Shorten the selling
Rapidly distribute information and
cycle
specifications to business partners
Improve sales
Transmit electronic drawings to
productivity
multiple suppliers simultaneously
Streamline the bidding
Cut sourcing cycle times and reduce
process
costs for sourced goods
Quickly receive and compare bids
from large number of suppliers to
negotiate betterCKprices
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Case Study of Intermediary-Oriented Market Place:
Boeing’s PART
Boeing’s PART Case
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 with online parts and
maintenance information and ordering
capability
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Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)
Boeing On Line Data (BOLD)
Incorporating not only engineering
drawings but manuals, catalogs and other
technical information that used to be
available only in paper or in microfiche
format
Portable Maintenance Aid (PMA)
Solves maintenance problems
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Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)
Benefits to Boeing’s Customers
Increased productivity
spending less time searching for information; frees up
engineers and maintenance technicians to focus on
more productive activities
Reduced costs
with information available online at the airports’ gates,
through PMA, rather than back in the office, delays at
the gate due to missing information are reduced
Increased revenue opportunity
through BOLD and PMA, a European airline estimates it
will save 1-2 days/year of down time for each aircraft
Should Boeing keep the inventory of parts in
stock, or relay on the manufacturers?
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Just-In-Time Delivery:
Fed Express InterNetShip
FedEx
Internet and private networks improve
efficiency and customer satisfaction
FedEx PowerShip and FedEx Ship were
the two software rolled out in the mid1980s and 1995 respectively
Now moving to the Internet : InterNetShip
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Just-In-Time Delivery:
Fed Express InterNetShip (cont.)
FedEx InterNetShip
Extends online capabilities to the Internet
Customers can request a parcel pickup or find
the nearest drop-off point, print packing labels,
compute fees, request invoice adjustments and
track the status of their deliveries without leaving
the Web site
FedEx COSMOS (own proprietary network)
handles 54 million transactions a day (1998)
Hundreds of thousands of tracking requests per
month come from links from over 5,000 Web
sites to fedex.com
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Just-In-Time Delivery:
Fed Express InterNetShip (cont.)
Benefits to FedEx
Avoided Costs
If not for FedEx PowerShip, FedEx would have had to
hire an additional 20,000 employees to answer phone
calls at the call centers and key in air bills
Lower Operating Costs
Without the system, approximately half of the calls
would have gone to FedEx’s toll-free number resulting
in high telephone and labor expenses
Better Customer Service
Customers still have a choice for how they interact
with the company, whether by e-mail, phone, fax or
other means
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Business-to-Business Auctions
Benefits
New sales channel
New venue for disposing excess, obsolete products
Increase page views; viewers like to watch auctions
Acquire and retain members
Types
Independent auctions: using 3rd party auction site
Community auctions: many sellers and buyers
simultaneously (Electricity, Flowers)
Private auctions: large distributor (Ingrain Micro)
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Business-to-Business Auctions (cont.)
What Auction Intermediary Provides?
All necessary infrastructure
Company controls all auction information
(software provided)
All procedures for auctions
Fast deployment time
Search engine
Trust mechanism (escrow, insurance)
Activity report generation
Billing and collection
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EDI - The Infrastructure for B2B
A network for transmitting standard transactions
A paperless TPS environment
Routine documents; purchase order, billings,
shipping manifests
Documents translated into standard business
language
In use since the 1970s on private VANs. Save
time, reduce errors in data entry, save money,
consistent information flow
Provide strategic advantages
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EDI - The Infrastructure for B2B (cont.)
Typical Flow of EDI Messages
one order - seven messages!!
Buyer
Supplier
RFQ
Response to RFQ
Purchase Order
P.O. Acknowledgement
Purchase Order Change
P.O. Change Acknowledgement
Functional Acknowledgement
(for each Transaction )
RFQ = Request for Proposal
P.O. = Purchasing Order
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From Traditional to Internet-based EDI
Factors limiting businesses to benefit from
the traditional EDI
Significant initial investment is needed
Restructuring business processes is necessary
to fit the EDI requirements and standards
Long start-up time is needed
Use of Private VANs is necessary
High EDI operating cost is needed
There are several EDI standards
The EDI system is complex to use
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From Traditional to Internet-based
EDI (cont.)
Traditional EDI does not meet following
requirements:
Enable more firms to use EDI
Encourage full integration of EDI into trading
partner business processes
Simplify EDI implementation
Expand the capabilities of online information
exchange
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From Traditional to Internet-based
EDI (cont.)
Reasons for firms to create the ability to
change transactions over the Internet
The Internet is a publicly accessible network with
few geographical constraints. Its largest attribute,
large-scale connectivity (without the need to have
special company networking architecture) is a
seedbed for growth of a vast range of business
applications.
The Internet global inter-network connections
offers the potential to reach the widest possible
number of trading partners of any viable alternative
currently available.
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From Traditional to Internet-based
EDI (cont.)
Reasons
Using the Internet can cut communication cost
by over 50%.
Using the Internet to exchange EDI transactions
is consistent with the growing interest of business
in delivering an ever-increasing variety of
products and services electronically, particularly
through the Web.
Internet-based EDI can compliment or replace
current EDI systems.
Internet tools such as browsers and search
engines are very user friendly and most users
today know how to use them.
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The Role of Agents in B2B EC
Requirement of Human Buyer
Buyer Agent B1
Seller Agent S1
Human
Seller 1
Requirement of Human Buyer
Buyer Agent B2
Seller Agent S2 Seller Agent S3
Human
Seller 2
Human
Seller 3
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Seller Agent S3
Human
Seller 4
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The Role of Agents in B2B EC (cont.)
AGENT
Problem Solver
Communication Controller
Outgoing Msg.
Problem Solving
Manager
Incoming Msg.
Message Manager
Message
Base
Directory Consulting
Solution Engines
Directory
Individual Manager
Data
Base
Knowledge
Base
Message Queue Mgt.
Order
Agent
Message Gate
An Architecture of Intelligent Agents for
Electronic Commerce: UNIK-AGENT Approach
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The Role of Agents in B2B EC (cont.)
 Management of Buyer Information at Buyer Sites to
Integrate with Corporate Information Systems
Current B-to-C Platform
Prospective B-to-B Platform
Buyer’s information stored in
the seller’s server
Buyer’s information needs to
be stored in the buyer’s
server to integrate with backend systems such as Intranet,
Workflow & ERP
Limited bookkeeping-supported Complete bookkeeping necessary
Web technology using a thin
Web technology with thick
client is adopted.
client is needed. Java and
External helper Program at
client PC are necessary.
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The Role of Agents in B2B EC (cont.)
 Comparison Shopping with Buyer’s Own Electronic Bag
Current B-to-C Platform
Prospective B-to-B Platform
Customers need to visit many malls
Meta-Mall architecture is need for
the customers to reduce the effort of
visiting many sites
Every mall requires a proprietary
shopping bag and digital wallet
Standard shopping bag and digital
wallet that can work independently
of malls are necessary
Software agents merely help the
search process
Comparison-shopping needs to be
treated as multiple criteria
decision support
Shared customer membership is
necessary to allow the comparison of
multiple malls with a single registration
Customer membership registration is
requested for each mall
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The Role of Agents in B2B EC (cont.)
 Just-in-Time Delivery
Current B-to-C Platform
Prospective B-to-B Platform
Inventory availability is not
displayed
Dynamic inventory availability
should be displayed to customers
Precise delivery date is less
critical
Precise delivery date should be
dynamically confirmed at
ordering time
Ordering system is fragmented
from inventory system
Integration of orders with
inventory, production scheduling,
and delivery scheduling systems
essential
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The Role of Agents in B2B EC (cont.)
 Buyer Oriented Directory
Current B-to-C Platform
Prospective B-to-B Platform
Seller Oriented Directory
popular
To big buyers, Buyer
Oriented Directory should be
offered
Additional motivation is the reengineering acquisition process
Major motivation of EC is sales
promotion
Either buyer or seller oriented
directory is developed
Intermediary directory is
necessary to coordinate
between seller and buyer
oriented directories
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The Role of Agents in B2B EC (cont.)
 Formal Contract with Bidding Process
Current B-to-C Platform
Prospective B-to-B Platform
Ordering without formal
contract is enough for order
fulfillment
Formal contract with electronic
documents that include specific
terms and conditions is necessary
Free contract protocol
Legitimate contract protocol
needs to be conformed
Electronic version of
traditional bidding and
auction are implemented
More creative contract protocol
can be innovated
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The Role of Agents in B2B EC (cont.)
 Organizational Purchasing Decision
Current B-to-C Platform
Prospective B-to-B Platform
Purchasing is an individual
buyer’s decision
Purchasing is an organizational
buyer’s decision
Buying decision process does
not need coordination
Buying decision is made as a
combination of synchronous
group decision (using web
conference and Internet phone)
and asynchronous group
decision (using workflow tools)
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The Role of Agents in B2B EC (cont.)
 Agent Based Commerce
Current B-to-C Platform
Prospective B-to-B Platform
Human interactively involved in the
buying decision
Buyer’s and seller’s software agents
assist communication to minimize
human’s involvement
Mutually agreed contract type
conformation is necessary to
effectuate the communication
between agents
Seller agents assist the
configuration process based on the
buyer’s requirement specification
Software agent in one site cannot
understand the norm of the
counterpart agents
Buyers have to search around the
seller’s products catalog configuring
manually
Seller’s data mining is popular
Buyer’s data mining is additionally
necessary
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The Role of Agents in B2B EC (cont.)
 Secure Large Amount Payment
Current B-to-C Platform
Prospective B-to-B Platform
Credit card is popular, and
relatively high fee is charged
to sellers
Electronic check and electronic
fund transfer will become
popular, whose fees are
traditionally paid by payer
Security, certification and nonrepudiation will become more
critical. So registered delivery,
which keeps the important
transaction record at the third
party will become popular
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Issues in B2B Advertisement and Marketing
Finding and retaining business customers
Making them buy
Reaching organizational buyers (functional,
corporate)
Building relationship marketing in B2B
Advertisement, mailing lists, strategies
Mailing lists: house, response, compiled
The role of the CD-ROM
Marketing databases and e-mail lists
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Internet Marketing Strategies
Generating and qualifying leads with the
Internet
Using Internet events to promote products
and services
Executing instant fulfillment on the Internet
Generating orders through the Internet
Enhancing customer relationships with the
Internet
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Managerial Issues
 If sales promotion is a major concern, adopt the SupplierOriented Marketing approach possibly joining popular
Intermediary-Oriented Market Places as well
 If purchase process re-engineering is a major concern,
consider establishing Customer-Oriented Market Place (if
sales volume is big enough) to attract the attention of major
vendors
 Otherwise, join a third party Intermediary-Oriented Market
Place to implement the plan from either or both aspects,
because every company needs effective and efficient sales
and purchases
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