Chapter 7
Public B2B Exchanges
and Portals
ChemConnect: The World
Chemical Exchange
The Problem
Before the Internet, the B2B trading
process was slow, fragmented,
ineffective, and costly
Buyers paid too much, sellers had high
expenses, and intermediaries were
needed to smooth the trading process
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ChemConnect: The World
Chemical Exchange (cont.)
The Solution
Traders meet electronically in a large
Internet marketplace
Save on transaction costs, reduce cycle
time, and find new markets and trading
partners around the globe
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ChemConnect: The World
Chemical Exchange (cont.)
ChemConnect provides a trading
marketplace and an information portal to
over 7,500 members in 135 countries
Members are:
Producers
Consumers
Distributors
Traders
Intermediaries involved in the chemical
industry
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ChemConnect: The World
Chemical Exchange (cont.)
Trading Center consists of 3 trading
areas
1. Marketplace for buyers
2. Marketplace for sellers
3. Commodity market platform
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ChemConnect: The World
Chemical Exchange (cont.)
ChemConnect members use the Trading
Center to streamline sales and sourcing
processes by automating requests for
quotes, proposals, and finding new
suppliers
The center enables a member to
negotiate more efficiently with existing
business partners as well as with new
companies the member may invite to the
table in complete privacy
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ChemConnect: The World
Chemical Exchange (cont.)
The revenue model includes:
members’ annual transaction fees
monthly or annual subscription fees (for
trading and for auctions)
fulfillment service fees
Three trading locations provide up-to-theminute market information
Business partners provide several support
services (payments, delivery, etc.)
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ChemConnect: The World
Chemical Exchange (cont.)
The Results
Benefits of ChemConnect to its members
are:
more efficient business processes
lower overall transaction costs
time saved during negotiations and biddings
sellers reach more buyers and liquidate
surpluses rapidly
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ChemConnect: The World
Chemical Exchange (cont.)
What we can learn…
Electronic exchange is owned and
operated by a third-party intermediary
Buyers and sellers, as well as other
business partners, congregate
electronically to conduct business
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B2B Electronic Exchanges
Public e-marketplaces (public exchanges):
Trading venues open to all interested parties
(sellers and buyers) and usually run by third
parties
Exchange: A many-to-many e-marketplace.
Also known as e-marketplaces, e-markets,
and trading exchanges
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B2B Electronic Exchanges (cont.)
Market maker: The third-party that
operates an exchange (and in many
cases, also owns the exchange)
Systematic sourcing: Purchasing done
in long-term supplier–buyer
relationships
Spot sourcing: Unplanned purchases
made as the need arises
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges (cont.)
Vertical exchange: An exchange whose
members are in one industry or
industry segment
Horizontal exchanges: Exchanges that
handle materials used by companies in
different industries
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B2B Electronic Exchanges
(cont.)
Dynamic pricing: A rapid movement of
prices over time, and possibly across
customers, as a result of supply and
demand
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B2B Electronic Exchanges (cont.)
Process that results in dynamic pricing in most
exchanges includes
1. A company posts a bid to buy a product or an offer to sell
one
2. Anonymity is often a key ingredient of dynamic pricing
3. Buyers and sellers interact with bids and offers in real
time
4. A deal is struck when there is an exact match between a
buyer and a seller on price, volume, and other variables
such as location or quality
5. The deal is consummated, and payment and delivery are
arranged
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B2B Electronic Exchanges (cont.)
Functions of exchanges
Matching buyers and sellers
Facilitating transactions
Maintaining exchange policies and
infrastructure
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges
(cont.)
Ownership of exchanges
An industry giant
A neutral entrepreneur
The consortia (or “third-party” co-op)
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B2B Electronic Exchanges
(cont.)
Revenue models
Transaction fees
Fee for service
Membership fees
Advertising fees
Other revenue
sources
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B2B Electronic Exchanges (cont.)
Governance and organization
Membership
the community in the exchange
Site access and security
information should be carefully protected
Services provided by exchanges
provide many services to buyers and sellers
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B2B Electronic Exchanges (cont.)
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B2B Electronic Exchanges (cont.)
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B2B Portals
B2B portals: Information portals for
businesses
Pure information portals include:
directories of products offered by each
seller
lists of buyers and what they want
other industry or general information
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B2B Portals (cont.)
Vortals: B2B portals that focus on a
single industry or industry segment;
“vertical portals”
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B2B Portal Examples
Thomas Register—information portal
Sellers distribute information on what
they have to sell
Buyers can find what they need and
purchase over a comprehensive and
secure procurement channel
reduce costs
shrink cycle times
improve productivity
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B2B Portal Examples (cont.)
Alibaba.com—started as a pure information
portal and is moving toward becoming a
trading exchange
Huge database is a horizontal information portal
with offerings in a wide variety of product
categories
Reverse auctions
Features–free email, email alerts, etc
Revenue model—advertisement and fees for
special
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Third Party (Trading)
Exchanges
Third-party exchanges are
characterized by two contradicting
properties
they are neutral, not favoring either
sellers or buyers
they do not have a built-in constituency
of sellers or buyers and sometimes have
a problem attracting enough buyers and
sellers to attain financial viability
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Third Party (Trading)
Exchanges (cont.)
A major problem is:
Market liquidity: The degree to which
something can be bought or sold in a
marketplace without affecting its price
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Third Party (Trading)
Exchanges (cont.)
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Third Party (Trading)
Exchanges (cont.)
Buyer aggregation model
buyers’ RFQs are aggregated and then
linked to a pool of suppliers that are
automatically notified of the RFQs
Suitability
aggregation models work best with MROs
and services that are well defined, that
have stable prices, and where the
supplier or buyer base is fragmented
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Third Party (Trading)
Exchanges (cont.)
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Consortium Trading
Exchanges
Consortium trading exchange (CTE): An
exchange formed and operated by a group
of major companies to provide
industrywide transaction services
Three basic types of environments:
1. Fragmented markets
2. Seller-concentrated markets
3. Buyer-concentrated markets
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Consortium Trading
Exchanges (cont.)
CTEs, defined by two main criteria:
whether they focus on buying or selling
whether they are vertical or horizontal
4 types of CTEs
1.
2.
3.
4.
Purchasing oriented, vertical
Purchasing oriented, horizontal
Selling oriented, vertical
Selling oriented, horizontal
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Consortium Trading
Exchanges (cont.)
Purchasing-oriented consortia
Vertical Purchasing-Oriented CTEs
all the players are in the same industry
Horizontal Purchasing-Oriented CTEs
owner-operators are large companies from
different industries that unite for the purpose
of improving the supply chain of MROs used
by most industries
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Consortium Trading
Exchanges (cont.)
Selling-oriented consortia
Most selling-oriented consortia are
vertical
Participating sellers have thousands of
potential buyers within a particular
industry
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Consortium Trading
Exchanges (cont.)
Other issues for consortia
Legal challenges for B2B consortia
level of collaboration among both competitors
and business partners
antitrust and other competition laws must be
considered
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Consortium Trading
Exchanges (cont.)
Critical success factors for consortia
Appropriate business and revenue models
Size of the industry
Ability to drive user adoption
Elasticity
Elasticity: The measure of the incremental
spending by buyers as a result of the savings
generated
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Consortium Trading
Exchanges (cont.)
Management of intensive information flow
Smoothing of supply chain inefficiencies
Harmonized shared objectives
Combining consortia and third-party
exchanges
dot-consortia—large consortia + third-party
owner
combination may bring about the advantage
of both ownership and minimizing third-party
limitations such as low liquidity
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Dynamic Trading:
Matching and Auctions
Dynamic trading: Exchange trading
that occurs in situations when prices
are being determined by supply and
demand (e.g., in auctions)
Matching
supply and demand
quantity, delivery times, and locations
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Dynamic Trading:
Matching and Auctions (cont.)
Auctions
Exchanges offer members the ability to
conduct auctions or reverse auctions in
private trading rooms
auction services as one of its many activities
fully dedicated to auctions
Many-to-many public auctions—vertical,
horizontal, run on the Internet or over
private lines
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Building E-Marketplaces
Building e-marketplaces is a complex
process
usually performed by a major B2B
software company
Commerce One
Ariba
Oracle
IBM
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Building E-Marketplaces (cont.)
Integration issue
Seamless integration is needed between
the third-party exchange and the
participants’ front and back-office systems
In private exchanges the seller’s
computing system must be integrated
with the customers systems
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Building E-Marketplaces (cont.)
External communications
Web/client access
Data exchange
Direct application integration
Shared procedures
Process and information coordination in
integration
how to coordinate external communications
with internal information systems
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Building E-Marketplaces (cont.)
Use of Web services in integration
Web Services enable different Web-based
systems to communicate with each other using
Internet-based protocols such as XML
System and information management in
integration
management of software, hardware, and
several information components, including
partner-profile information, data and process
definitions, communications and security
settings, and users’ information
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Support Services for Public
and Private Marketplaces
Directory services and search engines
Directory services help buyers and sellers
manage the task of finding potential
partners
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Support Services for Public
and Private Marketplaces (cont.)
Partner relationship management
(PRM): Business strategy that focuses
on providing comprehensive quality
service to business partners
E-communities and PRM
B2B application needs to provide
community services such as chat rooms,
bulletin boards, and possibly personalized
Web pages
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Support Services for Public
and Private Marketplaces (cont.)
Integration (as per Keenan Report)
Business-to-exchange (B2X) hubs connect
all of the Internet business services
e-merchant services
exchange infrastructure
buying and selling
member enterprises
other B2X exchanges
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Implementation Issues
Private vs. public exchanges
Private exchanges: E-marketplaces that
are owned and operated by one
company. Also known as company-centric
marketplaces
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Implementation Issues (cont.)
Problems with private exchanges
Transaction fees—required to pay transaction
fees with existing customers
Sharing information—do not want to share
business data with competitors
Cost savings—not great enough to attract buyers
Recruiting suppliers—lose direct contact with
customers
Too many exchanges
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Implementation Issues (cont.)
Supply chain improvers
Companies want to streamline their
internal supply chains, which requires
integration with internal operations
instead of “plugging in” to an exchange’s
infrastructure
Major problem is trust in the large
corporation running the exchange
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Implementation Issues (cont.)
Software agents in B2B enable customized
syndication of content and services from
multiple sources on the Internet to any
device connected to the Internet
provide real-time, tighter integration between
buyers and sellers
facilitate management of multiple trading
partners and their transactions across multiple
virtual industry exchanges
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Example: Asite
Asite’s B2B marketplace for the
construction industry
B2B e-marketplace for the construction
industry in the United Kingdom
This industry is typified by a high degree
of physical separation and fragmentation,
and communication among the members
of the supply chain is a primary problem
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Asite (cont.)
Two of the major advantages of the
Internet:
ability it provides to communicate more
effectively
increased processing power made possible by
Internet technologies
Asite decided not to build its own
technology, but to establish partnerships
with technology vendors that have highly
specialized products
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Asite (cont.)
Commerce One provides the business
solution for the portal
Microsoft provides the technology platform
and core applications
Attenda is the designer and manager of the
Internet infrastructure
Asite is committed to strong partnerships
that allow it to seamlessly interact with
other e-marketplaces
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Asite (cont.)
Internet browser is all that is needed to
connect to Asite’s portal
Ease of access makes it particularly well
suited to an industry such as construction
Construction firms streamline their
supply chains
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Asite (cont.)
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Managing Exchanges
Open standards mean that the
technology can be incorporated easily
with participating firms’ back-end
technologies, allowing full visibility of
the supply and demand chains
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Managing Exchanges (cont.)
Networks of exchanges (E2E)
Large corporations may work with several
exchanges, and they would like these
exchanges to be connected in a seamless
fashion
Commerce One and Ariba developed a
strategy that allows them to plug a broad
range of horizontal exchanges into their main
networks
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Managing Exchanges (cont.)
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Managing Exchanges (cont.)
Centralized management
Managing exchanges and providing
services to participants on an individual
basis is expensive
Build “families” of exchanges managed
jointly in order to operate several
exchanges from a unified, centralized
place
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Managing Exchanges (cont.)
Manages all of the exchanges’:
Catalogs
Auction places
Discussion forums
Managing and centralizing:
Accounting
Finance
Human resources
IT services
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Managing Exchanges (cont.)
Critical success factors for exchanges
according to Ramsdell:
1.
2.
3.
4.
5.
Early liquidity
The right owners
The right governance
Openness
A full range of services
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Managing Exchanges (cont.)
Other CSF:
Importance of domain expertise
Targeting inefficient industry processes
Targeting the right industries
Brand building
Exploiting economies of scope
Choice of business/revenue models
Blending content, community, and commerce
Managing channel conflict
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Managing Exchanges (cont.)
New directions in B2B marketplaces
Early failures of exchanges were due
mainly to the failure of these
marketplaces to foster a broad-based
sharing of information
Recognize the fundamental asset
provided by their member base is the
unique knowledge of the industry
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Managing Exchanges (cont.)
e-distributors
Take title to the goods they sell
Aggregate those goods for the convenience
of buyers
Advise buyers which to choose
Reach hard-to-find buyers
Result in extra value for buyers and decent
profits for sellers
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