Business-to-Business
Exchanges
Jenny Arnold
Supree Mongrolcheep
Matthew Sheets
Melissa Sherer
April 29, 2004
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Executive Summary:
Business to Business Exchanges
Business to Business exchanges (B2B) occur when two or more businesses come together to
make a transaction. A B2B exchange includes the following three markets: suppliers →
manufacturers → wholesalers. This paper concentrates on B2B e-commerce where buyers and
sellers meet in an Internet marketplace designed to make the transaction process more efficient
than the traditional methods of conducting business thru phone, fax, or email.
Size and Importance to Managers
Even though sources conflict on the actual size of spending conducted through B2B markets, all
sources agree that B2B exchanges comprise the LARGEST market known to business. In 2001,
one source, Gartner Group, stated that B2B spending was estimated to be $7,297,300,000,000 in
2004. In 2000, another source estimated that the market size would be $1.5 trillion. Whatever
the difference in estimating the market, it is clear to all sources that B2B is five to ten times
larger than B2C markets. Managers can benefit from B2B markets due to larger transaction
values in both size and dollars. Also when compared to Business to Consumer (B2C) markets,
80% of all money poured into e-commerce goes to B2B exchanges.
Benefits
When B2B exchanges are operating efficiently, this market provides many benefits including:
 Reducing transaction costs
 A larger opportunity for transformation as a result of scale and scope
 Lowering purchasing costs for the buyer due to automation of paperwork
 Providing an Internet marketplace to connect buyers and sellers that would not have met
using the traditional methods of doing business
Pitfalls
As discussed above, B2B exchanges deliver benefits when operated efficiently. However, on the
flip side, when operated inefficiently, some roadblocks that B2B exchanges can experience
include:
 Overcoming the habitual nature of people
 Money does not ensure success
 Prioritizing new features is not easy
 Launching at the right time is tricky
 Security is critical
 Tools for viewing and collaboration are essential
 Movement is toward private exchanges
Research Method
Initially, our research method included attending and interviewing a campus lecture given by
Robert Skandalaris, founder, chairman, and CEO, of Noble International Ltd.. Unfortunately,
the lecture was cancelled due to inclement weather. Since our group members did not work for a
B2B company, we searched for B2B company case studies. This led us to the European Case
Clearing House website where we found the Steelscreen.com case as well as a case referencing
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Covisint’s FTC investigation. Therefore, the main focus of this paper illustrates how three
companies: Steelscreen.com, Covisint and WorldWide Retail Exchange, demonstrated the
potential while starting up a B2B e-commerce company.
Summary of Overall Lessons and Findings
During the research process of B2B exchanges and thru the three case studies, we determined
that the overall lessons are best demonstrated through the best practices of the B2B market. The
following is a brief listing of the best practices:

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Products Exchanged
Structure of Exchange
Value-Added Services
How Does the Exchange Derive a Profit
What Role Do the Members play in the Management of the Exchange?
Proposed Benefit for Buyer or Seller?
The paper will further compare the companies of Steelscreen.com (Steel industry), Covisint
(Automobile industry), and WorldWide Retail Exchange (Retail, Food and Healthcare industry).
Additionally, the best practices model illustrates that all three companies share similarities even
though these companies are in diverse industries.
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B2B exchanges:
B2B’s are the LARGEST markets known to business!
B2B exchanges offer digital transaction services that enhance eBusiness presentation making it
safer and more secure.(5) The B2B marketplace is made up of websites that allow buyers and
sellers to come together to communicate both vertically and horizontally, and they are able to
bid, advertise, transact, and procure.(1) B2B can often be defined as:
 Selling to intermediaries rather than directly to the end customer
 Transactions involving fewer customers
 Smaller product ranges (9)
Spending
Numbers on B2B spending tend to vary by source. In 2002, the GDP of the U.S. was
$10,480,800,000,000. While in 2004, B2B spending is estimated to be $7,297,300,000,000.
The Gartner Group predicts the volume of e-commerce generated through B2Bs worldwide will
grow to $7.29 trillion by 2004, a far cry from $145 billion in 1999. B2B exchanges are expected
to facilitate nearly $2.71 trillion worth of B2B sales transactions in 2004, representing about 37
percent of the overall business-to-business market.(17)
B2B e-Commerce Spending
E-exchange
All other
Total e-commerce
$8,000
$7,297.3
Value (billions)
$7,000
$6,000
$5,000
$3,949.8
$4,000
$3,000
$2,000
$1,000
$2,704.1
$2,188.4
$953.0
$10.9 $44.6
$23.0 $145.0
1998
1999
$73.1
$402.7
$232.9
$1,202.3
$550.2
$0
2000
2001
2002
2003
2004
Year
Why is B2B bigger?
As you will be able to see in our case studies that follow, B2Bs are large operations for some of
the following reasons:
 The values of B2B transactions are bigger since the goods and services being created will
pass through a lot of hands before they reach an end customer.
 Big transaction value, however, does not always make a difference in the bottom line.
 B2B derived efficiencies will be competed away by companies whose products and
services are uninspired and undifferentiated. (10)
B2B versus B2C--B2B a bonanza B2C a bust
When B2B’s first startup their goal is to get as much value as they can out of the supply chain
rather than trying to steal customers from their competitors. Of all the money poured into ebusiness, 80% goes to B2B. The main reason that B2C startups fail is often because they lack
good business models, and they often do not receive the money that B2B exchanges receive.(10)
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Transactions
B2B exchanges act as virtual marketplaces and make money through charging transaction fees to
buyers and suppliers. On average these transaction fees are 4%. Online transactions make it
easier for buyers and sellers to come together on the web:
 Certain exchanges allow businesses to find particular products or suppliers to agree to the
terms of a transaction online (while the actual sale takes place offline)
 Others allow for complete transactions to take place online.(7)
Types of B2B exchanges
There are two types of B2B marketplaces through which these exchanges take place:
 Horizontal B2B exchanges serve a wide range of industries. Horizontal B2B
marketplaces deal with the exchange of supplies that are common to many industries.
Some examples of this could include computers or work clothes.
 Vertical B2B exchanges specialize in trading supplies in one particular industry. Some
examples of industries that benefit from vertical exchanges would include petroleum or
agriculture.(4)
Benefits of B2B Exchanges
Why are they useful???
When done correctly B2B exchanges can provide many benefits for their users, including the
following:
 Cutting transaction costs—By allowing customers to download catalogs online and
creating paperless purchase orders, companies can save valuable resources.
 Large opportunity for transformation because of scale and scope.
 Buyers are able to reduce purchasing costs due to automation of paperwork—saves
valuable time.
 Online exchanges introduce buyers to suppliers they would not have traditionally met—
allowing buyers and sellers to come together on the web.(7&9)
Benefits to Buyers
If a buyer is looking to get the lowest price, chances are they will prefer a B2B marketplace.
However, if they want to develop a close relationship with a supplier because they are dealing
with large orders that are critical to the core operations, they may prefer bilateral e-trade.
Benefits to Sellers
Sellers can maintain some control over their sales channels while minimizing service costs.
However, this could mean that they lose their existing customers. Another benefit to a seller
could be that they could customize products by taking over value added processing. (13)
Analyzing the B2B Market
Structure, Processes, and Groups
A market has three basic elements: a mechanism (info-structure) to support data exchange, a set
of market processes, and a set of institutions to perform these market processes.
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Info-structure is compared to the plumbing and wiring that support a building. Without these
vital internal structures, the building would not exist. The same comparison can be made with
info-structure and markets. Without information and the systems to gather, store, and
redistribute; markets can not operate. The more efficient the structure, the more efficient the
market. Info-structure can be broken down into physical infrastructure (computers, telephones,
switches, and wiring) and intangible data.
Market processes are composed of five trade and five context processes.
Trade processes represent activities that buyers and sellers must accept before goods and
services can be exchanged. The trade process is made up of the following activities:
 Search: Buyers and sellers must find each other.
 Authentication: Help participants verify each other’s trustworthiness prior to the
transaction.
 Pricing: Negotiation of acceptable prices.
 Payment: The transfer of money between buyers and sellers.
 Logistics: Arranging the physical transfer of purchases made in the market.
Context processes are activities that support the trade process or help the process run
more efficiently. The context process is made up of the following activities:
 Representation: Principles or agents acting on behalf of the buyers or sellers.
 Regulation: Ensuring that all transactions meet specified rules.
 Influence: Ensuring that the transactions are actually executed.
 Dispute Regulation: Adjudicating conflicts with participants of the transaction.
 Risk Management: Specialized insurance agencies that mitigate the effects of
counterparty failure to uphold their half of the exchange.
Institutions can be described as “ecosystems”, made up of three groups – principals, agents, and
supporting cast members.
1. Principals are the buyers and sellers. This group constitutes the participants involved in
making the exchange.
2. Agents (brokers or traders) represent principals in one or more of the market processes.
3. Supporting cast members represent bankers, insurers, shippers, etc. They provide highly
specialized context processes to the market.
In essence, the market is more than just a platform or a process. It is a web of personal and
interpersonal relationships between principles, agents and the supporting cast members. (9)
The Future of B2B Exchanges
The future is never clear
In 2000, B2B exchanges were thought to be growing markets; however there were some doubts
about the future. It was estimated that the market size would be $1.5 trillion in 2004; making it
five to ten times larger than estimated B2C markets. In 2003, it was estimated that more than
half of B2B trade will take place through eBusiness networks or eMarketplaces. (5) All of the
sources that were researched gave conflicting estimates for the B2B exchanges. However, the
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bottom line and main takeaway is that the B2B market is much BIGGER than the B2C
market.
Why are B2B Exchanges Struggling?
The main goal of B2B services should be to bring buyers and sellers together using the Internet
as a tool. However, some B2B exchanges are failing due to the following reasons:
 People are creatures of habit. People are used to their familiar ways of conducting
business thru telephone, fax and email. Therefore, it can be difficult to convince these
individuals to change their habits and use the Internet to conduct business transactions.
 Money does not ensure success. Even if a company spends money to build a good
environment for a B2B exchange, they are still not guaranteed to earn the money back.
Money is important, but it is not the only factor in determining success. Factors such as
employees and business plans must be used in conjunction with one another to achieve
success.
 Prioritizing new features is not easy.
Defining new features is not challenging,
however, prioritizing and communicating these new features to the Web development
team can cause difficulties.
 Launching at the right time is tricky. Timing is everything.
 Security is critical. In a world of information, data security is important when doing
business.
 Tools for viewing and collaboration are essential. Information today has become
increasingly more complicated making it a necessity for B2B exchanges to establish tools
that simplify processes.
 Movement is toward private exchanges. The private exchange is stealing the spotlight
from public exchanges by providing companies value-added alternatives that help meet
specific needs. (16)
Evaluating B2B Best Practices:
Over the last 80 years, products and businesses of great diversification have experienced the
same general market life cycle. In an entity’s beginning stages, R&D costs are high, profits are
low and economies of scale are few. With low barriers to entry, competition floods the
marketplace and throws an industry into chaos. While some market participants prosper, many
have flawed business models and fail in the industry.
Statistics show that B2B exchanges are no exception. Before competitive turbulence shook free
nearly 90% of the market participants, there were over 1500 B2B exchanges. Now there are less
than 200. (14) Why? What made over 1300 firms extinct? What are the 200 firms doing right?
The following are some best practices we developed to help differentiate the successful business
models from the lemons:

Products Exchanged – raw materials like steel and timber can entice participation through lower
costs. General products like paperclips and office furniture also are attractive at bulk prices.
Items like diamonds, Van Goghs, and small-arm NATO weapons are not ideal for B2B internet
exchanges.
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Structure of Exchange – is the exchange public or private? Private exchanges are generally
formed by participating members for the benefit of the participating members. Publicly-traded
exchanges are formed to maximize the wealth of the shareholders, whom may or may not be
participating members.
Value-Added Services – the competition is intense enough without having to combat a potential
client’s traditional methods of B2B interaction. Value-added services not only provide a leg up
on the competition, but help to persuade business away from fax machines, telephones and
notepads.
How Does the Exchange Derive a Profit – the two most common practices for generating
revenues are transaction commissions and annual fees. Commissions seem to properly align an
exchange with the participants. Annual fees help to entrench participants, but do not have the
total dollar potential that commissions enjoy. Ultimately, if you are not profitable, you are living
on borrowed time.
What Role Do the Members play in the Management of the Exchange? – When the members
have a say, their best interests are represented. An active management role by the members of an
exchange is a good sign the exchange is private.
Proposed Benefit for Buyer or Seller? – This is a trick question. Successful exchanges must
provide value for both sides, especially since they are also engaged in the greater fight against the
‘old’ way of conducting business.
Now that some best practices have been set forth, let’s see what they reveal about three B2B
exchanges in particular. We chose 3 companies to perform case studies on; companies that were
diverse with respect to goods traded and member characteristics. The three companies selected
for study were the WorldWide Retail Exchange, Covisint, and Steelscreen.com.
WorldWide Retail Exchange:
The Premiere Internet-based B2B Exchange in the Retail e-Marketplace
In March of 2000, 17 international retailers pooled $100 million of capital into an Internet-based
B2B exchange to improve supply chain processes both vertically and horizontally. The
WorldWide Retail Exchange, or WWRE, facilitates the exchange located at www.wwre.com.
Trading is done in the form of online auctions, where products are listed and bid on for a
specified amount of time (usually days). Some benefits of using the WWRE include the
following:
 The retailers envisioned an Internet marketplace, where goods could be efficiently
obtained, and surpluses could be quickly unloaded.
 Perishable items would be routed quicker through automation, allowing reduced costs for
consumers and less spoiled product for the retailer.
 A worldwide network of suppliers would give the retailers access to new markets.
At the time, this group of retailers boasted of over $300 billion in annual sales. If it is agreeable
to say that the average company’s IT budget is 5% of revenues, then the combined annual IT
budget of these 17 companies would have been around $15 billion. Ironically, although $100
million seems like high initial startup costs, this sum represented only 0.67% of the founding
member’s annual IT budget. This illustrates how massive these companies are and more
importantly that only a small number were required to give the inexperienced exchange its
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required inertia. Consider that the combined economic output of these 17 retailers was roughly
equivalent to the GDP of Russia in 2002! (21)
Value Proposition
Digital Economies of Scale with a Global reach
In the past, companies had to purchase their own IT assets and manage them. Outsourcing was
an unproven commodity and companies lacked the experience needed to properly plan for future
IT needs. With the WWRE, companies can leverage expert knowledge and retain a needed
degree of control through:
1.
2.
3.
Cost efficient products that grow with your business allow for collaboration between
members and are helpdesk supported.
Shared technology investments and outsourced assets allow for a “whole is greater
than the parts” advantage. Although a company may have invested several million in the
WWRE, they get access to several hundred million of IT assets.
Access to a global membership community and the ability to network with other
retailers/manufacturers. More sellers mean cheaper prices for buyers. Free access to a
proven market means sellers can increase their exposure to the WWRE risk-free.
Although initially founded by large retailers like Albertson’s, Kmart, Marks & Spencer, and
CVS Pharmacy, the exchange has grown today to include pharmaceutical manufacturers such as
GlaxoSmithKline, Wyeth, and Schering-Plough. The WWRE has proven useful at not only
helping retailers cut costs on goods they stock their stores with, but also at combining demand
across users to lower costs on back office supplies like furniture, light bulbs and pencils. Today,
there are 64 members of the WWRE and over 100,000 suppliers. These 64 members employ
over 5,000,000 workers in over 130 countries. With $900 billion in annual sales, this group is
the 8th largest country in the world in terms of GDP. (21)
Founding Principles
You Say Jump, the WWRE says, “How High?”
The WWRE depends on the success of the members for continued business. Since the WWRE
and its members (who are also equity owners) have a symbiotic relationship, what affects one
will affect the other. This is how the WWRE intends to maintain the momentum:
1.
2.
Openness – since the founding members had an equity position, it would be more
difficult to walk away. Therefore, it was crucial that dealings between the exchange and
the members be transparent. The exchange was created to benefit the members, so it
must be able to adjust to the member’s changing needs.
Commitment to Utilizing the Best Available Technology – this also means knowing
when to outsource a non-core function when an appropriate alternative is found. When
selecting outsourcing partners, the WWRE conducts a financial assessment and a
technology review. WWRE members are actively involved in this process.
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3.
Operation as a Neutral Company – this allows the WWRE to focus on its member’s
best interests alone. In theory, our federal government is supposed to do this also, but
that is another paper for another day.
So far, the WWRE has saved member companies over $1 billion to date. This is more than the
market capitalization of over 1600 of the 2000 companies that comprise the Russell 2000 index.
A billion dollars is roughly equivalent to the entire ASP market! At this point an overview is in
order of the utilities that have proved so useful. (21)
Four Featured Exchanges and Value-Added Services
The Nuts & Bolts of the Enterprise
The two exchanges that WWRE operates are the Surplus Goods Exchange (horizontally
integrated) and the Perishable Goods Exchange (vertically integrated). These exchanges
comprise the major profit centers of the WWRE. The Demand Aggregation and Asset Manager
make up their value-added services. Both Suppliers and Retailers benefit from the value-added
services, increasing the attractiveness of this exchange for all potential participants.
Surplus Goods Exchange (SGE)
Try as they might, businesses invariably end up with surpluses from time to time. Surpluses can
be caused by incorrect forecasts, ineffective promotions, discontinued items, closeouts, seasonal
variances and labeling changes to name a few. Whatever the cause of the surplus may be,
traditional methods have been inefficient and economically unattractive. The WWRE partnered
with Visagent Corporation in 2001 to develop and host the auction site. In the member’s eyes,
the SGE has all but replaced conventional intermediaries by allowing buyers and sellers to
pocket the normal middle-man markup and more importantly, quickly turn non-performing
assets into cash.
When faced with a surplus, the seller has the ability to combine surplus products with other
sellers, allowing for a quicker bulk transaction rather than liquidation via several small trades.
Never content with leaving well enough alone, the WWRE also allows sellers to control the
types of buying groups that see a particular auction to ensure that products are matched to their
potential buying groups.
The trade screen below for the Surplus Goods Exchange is simple and straightforward. This
helps to ensure that problems do not arise later once an auction has closed. Using the SGE is up
to 70-80% less expensive than other liquidation alternatives. Additionally, sellers do not pay to
use the exchange; rather the buyer pays a small fee plus transportation. Members of the WWRE
pay 2.5%; other buyers pay 3.5%. This is done to encourage membership. (21)
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Perishable Goods Exchange (PGE)
Before the WWRE and Agribuys teamed up to launch the PGE in April of 2001, grocers had
long complained about inefficient procurement practices. Over 70 cents of every sales dollar in
the fresh foods industry is spent on buying, shipping and storage. This figure is higher of course
since some of the purchased product never makes it to the grocer’s shelves due to spoilage. By
streamlining the fresh foods supply chain, grocers are able to reduce shipping and acquisition
costs by eliminating the wholesaler, buying from the producer and contracting for the shipping at
the point of purchase.
Members of the exchange can also combine partial truckloads of goods to save money on
transportation. This benefits the trucking companies by allowing them to plan their routes and
fleet deployment further in advance. Because delivery times are reduced, grocers lose fewer
products to spoilage and are able to reduce inventories. It is important to note that even if
prices of the perishable goods on the PGE were the same as prices through conventional
channels, the reduced shipping and cost savings associated with that aspect alone make the
PGE too compelling to ignore. Along the same line, purchased products can be tracked by the
buyer from the seller’s warehouse to the buyer’s store. If a problem occurs, it can be handled in
real-time, while contingencies may still exist. In the past, it could take days to find out that there
was a problem with a delivery. (21) The illustration below accentuates the mutual collaboration
between parties that is possible because of the Perishable Goods Exchange:
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Demand Aggregation
One of the value-added services offered by the WorldWide Retail Exchange is the Demand
Aggregation suite. As is the recurring theme in this class, the more of a train wreck a firm’s
current buying structure is, the more useful this product will be. First of all, this offers
businesses with several buyers the ability to consolidate buying activities in a central location.
Secondly, demand for goods can be combined with other firms’ demand in order to leverage
even greater economies of purchasing scale.
Benefits to Buyers

Reductions in Transaction Costs – with a central buyer, fewer transactions are
needed.
A central buyer also helps to curb maverick spending.

Reduction of Time Required to Participate in Collaborative Activities – several
firm’s central buyers can collaborate. This reduces redundancy and saves time since
fewer people are involved in the aggregation process.

Budgeting Tools – templates for projects can be created and managed to determine how
actual spending relates to the forecasted amount.
Benefits to Sellers

Improved Customer Response Time – by operating on the same platform as your
buyers, communication is streamlined resulting in better service.

Eliminate the Need for Outdated Paper Catalogs – whenever information changes,
suppliers can update product descriptions within seconds as opposed to waiting for the
last Friday of the month. (21)
Asset Manager
Through this value-added service, organizations can store, share and organize digital assets. This
is important when being the first company to market with a new product can mean the difference
between success and failure. Because these stored media assets can be quickly sent to suppliers
on the WWRE platform, total time to market is drastically reduced. Even if a new product is not
being developed, both suppliers and retailers benefit from improved communications and the
ability to efficiently share media. (21)
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Best Practices
To wrap up the Worldwide Retail Exchange, let’s see how the company measures up to our best
practices. The WWRE is privately held; owned by the exchange’s members and governed by a
board made up of member firm employees. The firm trades general products as well as
perishable products. Having said that, the WWRE exists to remove inefficiencies in the supply
chain, not create wild short-term profit opportunities. This should keep the interests of the
exchange aligned with the needs of the members. It is apparent that the exchange benefits both
buyers and sellers, given the large amount of volume the WWRE is beginning to experience.
The WWRE derives income from membership fees and commissions. Although annual fees are
nice to have, the real future of this company should be tied to commission revenues. Last but
not least, although the competition has similar value-added services, companies that can
continue to roll out new services over time can consider those services to be a competitive
advantage.
Industry
Products Exchanged
Private or Public
Proposed Benefit
Value-added Services
Profit Sources
Member’s Role in
Management of the exchange
World Wide Retail Exchange
Retail, Food, Healthcare
Mostly General
Private
Buyer & Seller
Asset Management & Demand
Aggregation
Fees and Commissions
Equity Stakes and Governing Board
Covisint:
The World’s LARGEST B2B
Covisint is a technology company that connects the global automotive industry using business-to
business applications and communication services. Covisint is a worldwide organization that
works to implement common processes for the entire industry by working with manufacturers,
suppliers, and industry trade groups. Once a member of Covisint, companies can reduce costs,
enhance quality, increase efficiency, and improve time to market.
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History
 On February 25, 2000, Daimler-Chrysler, Ford, General Motors and Renault-Nissan
formed Covisint.
 On January 1, 2001, Covisint officially began business in the United States, and in July of
that year they began in Europe, Asia-Pacific, and Latin America.
 Covisint’s U.S. headquarters are located in Southfield, Michigan. They have offices in
Amsterdam, Tokyo, Frankfurt, Paris, and Rio DeJanero. (18)
It should be noted that it is very difficult to find out details about Covisint as it is owned by the
automakers and is not a publicly held company. Therefore they are not required to reveal their
revenue figures.
Size



25,000 registered customer organizations (this number is comprised of all of Covisint’s
suppliers and buyers in their user base)
135,000 active users from these registered customer organizations
Provides services in over 96 countries (18)
The Business Plan
When the company was first formed in 2000, it’s plan included making it quicker and easier for
car companies to gather bids from around the world and close the best deal just by explaining
exactly what it is that they wanted to buy. The new company was basically going to be an
Internet auction site where they could buy anything from steering wheels and engine components
to toilet paper. It was basically to be a one-stop shop for anything that an automaker would need
in order to do business. (6)
Why Form Covisint?
 Supply chain for the automotive industry is very disconnected and therefore the flow of
information is often constricted.
 Another very important reason for Covisint is that along points of the value chain there
are information gaps which cause expensive inefficiencies and unsatisfied customers.
These information gaps cost the industry gigantic amounts including:
 $6-8 billion in processing and managing quality processes
 $2-3 billion administering warranties
 Asset utilization is less than 50 percent
 30 days are wasted responding to each quote
 $3-4 billion in obsolete inventory due to lack of communication in design changes
 15 percent of all tooling is obsolete before it is ever used
 Due to just-in-time pressures and premiums, freight transportation costs are three times
higher in the automotive industry
 25 percent of platform development times are lost due to duplication of work and long
wait times for responses (18)
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The Solution
Covisint felt that the logical solution was to use the Internet to connect, communicate, and
collaborate with customers and suppliers.
Collaborate
Connect
Communicate
Covisint Communicate
Covisint Communicate is a portal that works with suppliers to provide access to the information
they need in order to work with the customer. This allows for industry participants to access
buyer and supplier applications through one common place that was built through the input of
suppliers and OEM customers. It allows for companies to create a strong presence when they
become a trading partner, which can allow them to better communicate with the supply chain.
Covisint communicate is easy to use for trading partners through one easy password. (18)
The following is an example of a Trading Partners Page.
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Covisint Connect
Covisint Connect is a single connection provided through a data messaging service for the
exchange of data between a company’s current enterprise applications and their supplier’s
applications. A business should be able to benefit from the ability to launch new business
processes quickly. By using Covisint Connect there should be value created for both the
customers and their suppliers. (18)
Promised Value
•
Customer/buyer
•
– Enables dependable
delivery of business
documents to any point
along the supply chain.
– Changes the way to carry
out common store-andforward Electronic Date
Interchange (EDI) as well
as any new business
integrations based on
Internet Protocol and the
latest XML document
format.
Suppliers
– Provides extra values such as
cost effective solutions to
smaller trading partners,
improving data integrity, and
allowing for affordable
electronic communication
with trading partners.
– Single connection approach
allows for consolidation of
all customers regardless of
any special requirements or
restrictions, made possible
through the hub model.
Covisint Collaborate
As mentioned earlier, Covisint Collaborate resembles a helpdesk, which can allow for more
efficient services to solve emerging business problems through third party applications,
enterprise solutions, cross-enterprise supply chain applications, and customer relationship
management (CRM). Covisint has also set up three phases to allow suppliers to connect
effectively and efficiently:
 Project Goal and Scope of Work: Understanding project goals and business objectives
of the customer.
 Supplier Rationalization and Prioritization: Working with individual companies to
provide timely and accurate information.
 Supplier Recruitment and Status Reporting: Covisint provided applications that are
licensed to each supplier with an individual contract. (18)
FTC Investigation
Anti-trust implications for Covisint spark debate for all B2B exchanges
In July 2000, the Federal Trade Commission (FTC) launched an investigation into Covisint. The
FTC explored possible anti-trust infractions by looking at Covisint’s structure and mission.
Covisint’s online exchange could raise anti-trust concerns since their founders represented a
large share of the automotive market. Therefore, the FTC wanted to make sure that the
arrangements would not allow for the big automakers to collude in order to drive down prices.
There was also concern that sensitive information could be passed along about competitors or
that small businesses might be excluded from the market. (3)
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Antitrust Compliance Policy
In response to the FTC’s investigation Covisint issued the Antitrust Compliance Policy which set
down strict guidelines that everyone in the organization must follow. The following is an
excerpt from the policy:
“The fundamental objective of the antitrust laws is to protect and promote free and fair
competition. These laws reflect the belief that competitive markets will provide
consumers with the highest quality goods and services at the lowest prices and enable the
most innovative and efficient firms to thrive. Covisint supports the public policies
embodied in these laws and it is the company’s policy to comply fully with them.” (19)
The policy set up the following consequences for anyone who did not follow the policy:
 Any individual that was convicted of a violation could face up to three years in jail and a
fine of up to $350,000.
 Any employee who did not comply was subject to discipline, which could include a
demotion or dismissal.
 Management was held responsible for employees reporting to them and could face
disciplinary action against them.
The Outcome
On September 11, 2000 Covisint was cleared of any charges by the FTC since it was found to be
open to participation of all suppliers and it would not be the only place through which
automakers purchased parts. Also since Covisint did not start providing service in the United
States until January 2001 they were not considered to be in business at the time of the
investigation, however they were going to be closely monitored since in the future there could be
concerns about how they were going to do business. (3)
Since Covisint was the first B2B exchange to be reviewed by the FTC, a large debate was started
about how or whether the B2B industry should be regulated by anti-trust provisions. FTC
chairman, Robert Pitofsky, stated the following about how B2B exchanges would be monitored:
“The antitrust analysis of an individual business-to-business exchange will be specific to
its mission, its structure, its particular market circumstance procedures and rules for
organization and operation, and actual operations and market performance.” (3)
Recent Issues
Will Covisint Survive?????
When Covisint began, it was predicted that it would become the biggest Internet company in the
world by assisting the automotive industry and it’s suppliers to buy and sell an estimated $240
billion in car parts every year. According to an auto.com article Covisint hits rough patch as
business falling flat, it was noted that there had been bogus auctions that made suppliers reluctant
to sell their products through Covisint. Therefore, many suppliers only used Covisint when
customers demanded it and very few now use it for their own purchases. As a result of this
Covisint had approximately $70 million in annual revenues in 2002 when it had hoped to have
$150 million in revenues. (11)
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As a result of these problems Covisint signed an agreement in December 2003 with Freemarkets,
Inc. a global supply management solutions (GSM) to acquire sourcing and service assets. This
means that Covisint will transfer all of its customer contracts for auction services over to
Freemarkets which will now be positioned as the premier provider of sourcing technologies and
services to the automotive industry as a result of this agreement. Under long-term contracts,
Freemarkets will serve Ford, General Motors, and Daimler Chrysler using its own sourcing and
technology services. They will also provide solutions to OEMs such as Nissan, Mitsubishi, and
other Covisint customers.
The following is a quote from Bob Paul, CEO of Covisint about the deal with Freemarkets:
“Covisint has had a very successful year in which we more than doubled our user base.
The sale of our auction services to Freemarkets is a logical and evolutionary step as we
continue to focus our strategy on the Automotive Industry Operating System and
delivering supplier management portals and data messaging services.” (8)
Best Practices
Covisint is a B2B exchange in the automotive industry where products specific to the automobile
industry are traded. Covisint is a privately held company that was formed by the three
automakers and set up to benefit both buyers and sellers. In the past they have derived their
revenues through commissions made on sales. However, they are now going to a system of
charging members an annual fee and then members will be allowed to participate in as many
auctions throughout the year as they wish. The members of Covisint have a very active role in
management of the exchange as they sit on the Board of Directors.
Covisint
Industry
Auto
Products Exchanged
Specific
Private & Public
Private
Proposed Benefit
Buyer & Seller
Value-added Services
Profit Source(s)
Member’s Role in Management of
the Exchange
Connect, Communicate, & Collaborate
Commissions
Members sit as Board of Directors
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Steelscreen:
Exploiting NEW Technology in and OLD Industry
The following excerpt may help individuals not in the steel industry understand just how difficult
it was for Steelscreen to undertake a new technology in such an old industry:
Imagine you have been dating someone for years. The relationship is blossoming, but
one day your sweetie informs you that instead of calling, you should communicate by
email. And if you want to get together, you should arrange that through an online dating
service, where you will competing with other suitors. That, in essence, is the message
that suppliers of everything from paperclips to maintenance services got a couple of
years ago when manufacturers eager to business-to-business, or B2B, exchanges on the
Internet, says Laird Harrison, Time Magazine writer. (12)
This was the issue that Steelscreen faced when implementing an online exchange marketplace
for its suppliers and buyers to exchange goods. However, Steelscreen knew that in the end, the
new technology would allow many more exchanges to occur between buyers and sellers.
The Founding Fathers
Extensive Knowledge in the Metal Industry
Steelscreen was founded in 1999 by a group of European metals and telecom industries. The
following pictures are the individuals responsible for the birth of Steelscreen and are still part of
Steelscreen’s management team:
Anders Candell
Technical Manager
David Schelin
CEO
Fredrik Ohrn
Financial Manager
Peter Anderberg
Marketing Manager
One of Steelscreen’s customers, Mario Vergna, Commercial Director of ILTA INOX, stated,
“Steelscreen’s founders have an extensive knowledge on the metal business, which guarantees
the marketplace really fulfills the needs of the European companies.” (15)
Proposition & Goals
Launching the World’s 1st Industry Standard for On-line Metal Trading
Steelscreen’s proposition is to offer a meeting point (marketplace) for buyers and sellers of the
metal industry to communicate more efficiently. Steelscreen will never participate as an agent or
trader, only to provide the meeting point for buyers and sellers.
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Steelscreen’s goals include:
 Become the leading marketplace for metal products in the European market
 Make the purchase and sale of the metal products simpler and more efficient by offering
a neutral marketplace
 Offer value-added services such as: financial service, logistic and transport quality,
product inspection, etc. (15)
E-Commerce Trading Models
Third-Generation Trading Model—Neutral to Both Sides
Steelscreen operates under a third-generation trading model which offers a neutral position
(M=Marketplace) to both suppliers (S) and buyers (B).
S
B
M
S
S
B
B
The benefits for the Third Generation Model exist for both the buyer and seller. They are as
follows:
Suppliers:
 Sell products with lowering operating costs
 Needs satisfied
 Transactions processed faster
 Gain competitive advantage
 Reaches most users
 Does not require large IT investments
Buyers:
 Simplified negotiation process
 Needs satisfied
This model has NO great disadvantages to either the buyer or supplier making it a more
efficient model than previous models that benefited the buyer or seller but not both parties. (15)
$$$$$ Revenue Model $$$$$
Sales Commission on Transaction Value
Since Steelscreen does not act as a buyer or seller in the marketplace, they needed to generate
revenue through another source. Steelscreen opted to charge a sales commission of 0.5 to 1%
of the transaction value. When compared to the e-commerce sales commission average of 4%,
21
Steelscreen’s commission was considerably low. Also, Steelscreen did not participate in the
exchange of money; therefore, the money is handled directly between buyer and seller. No fee
was charged to the purchasing party. Hence, the selling party was held responsible for the sales
commission on the transaction. Steelscreen also viewed the value-added services as a future
source of revenue. Since Steelscreen is a privately held corporation, the revenue figures are not
publicly made available. (15)
Types of Members
By spring 2000, more than 700 members
Obviously, when a transaction of a product occurs, a buyer and seller must be involved.
Steelscreen has four different member options available. When a company registers to become a
member of Steelscreen, the company must select which type of member it wishes to be
considered. The four types of members include: Selling Member, Buying Member, Buying and
Selling Member (wholesalers), and Associated Member.
Founded in July 1999, Steelscreen actually started trading on the World Wide Web in the spring
of 2000. By the end of August that same year, more than 700 members had joined the
marketplace and significant “tonnage volumes” of product had been traded. (15)
Why be a member?
Time Saving, Cheaper, Secure……
What are the benefits of being a Steelscreen member? What advantages will my company have
over other companies? These were many questions that companies raised when Steelscreen first
launched their on-line trading marketplace. As the beginning of this case study implied,
changing the technology and way of doing business for such an old industry was the main
challenge that Steelscreen faced in the beginning.
Steelscreen established a list of most important reasons stating why a member should use the
Steelscreen marketplace:
1. Cheaper: The commission selling members paid on the transaction value was much less
than the industry charged
2. Faster: Information about products is distributed to all potential business partners
3. Simpler: Inquiries and offers more specified
4. More efficient: Reach all members at once
5. Time Saving: Members only spend time with rewarding contacts
6. Up-to-date: Facts, trends and analysis
7. Comprehensive: Growing number of value-added services
8. Independent: Neutral to both parties
9. European: Adapted to standards and available in many languages
10. Secure: Maximum security (15)
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Mario Vergna gave his thoughts about being a member of Steelscreen,
“Trading on Steelscreen gives us several major advantages. The most important benefit
is the ability to find, evaluate and select the right business partner. This helps us avoid
risk. In addition, our goal is to save time and money and make our trading process more
efficient.” (20)
The Exchange
By 2005, 40-60% of all metal produced will be sold via the internet. (15)
Any metal product is tradable. The more standardized the metal, the easier it will be for the
member to use the system. Steelscreen is an Internet Marketplace providing buyers and sellers
the more efficient market channel. Anderson Consulting has projected that 40-60% of all metal
produced in the world will be sold via internet by 2005.
The following represent the suppliers and buyers exchange screens. The screens will help
further explain the trading process between buyer and supplier.
Buyer’s Area
How to send an Inquiry
The buyer will select a product and complete the inquiry details such as quantity, dates, delivery
address, etc. Then the buyer will select the suppliers that it wishes to send the inquiry to. The
inquiry is now ready to be sent to the supplier. The exchange screen is displayed below. (20)
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Supplier’s Area
Replying to an Inquiry
Inquires appear automatically in the Supplier area. The Supplier will create an offer and fill in
the offer details such as quantity, price and delivery date. The final step is to send the offer. (20)
Supplier’s Area
How to send a spot item
The Supplier selects the product and fills in the spot item details of the sale. Then the Supplier
selects and sends the spot item to the buyers it wishes to contact. (20)
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Buyer’s Area
Replying to a Spot Item
The Buyer receives the spot item and must decide to order or decline. If the buyer decides to
order, it must fill in the details, click Bid/Accept Offer and confirm the order with a password.
(20)
Standardizing Members’ Needs
Steelscreen offers a complete database of standards and alloy information. A member can search
the database specifically by designation, chemical composition and mechanical properties.
Steelscreen’s marketplace is more efficient due to the members’ ability to create their own
standards and alloys and by defining specific characteristics. Essentially the database helps
members save time, find products that suit their needs, and customize products to meet specific
characteristics. (15)
Best Practices
Measuring up……
The Steelscreen case study can be summed up by relating it to the best practices. Of course, it is
obvious that Steelscreen operates in the steel industry which is a very specific industry. Our
group tried to enter in a “fake” membership application and our application was never accepted.
Steelscreen takes its marketplace very seriously making it a very private company. Both the
buyer and seller benefit from the exchange. The sales commission on transactions currently
generates the revenue but Steelscreen hopes that revenues from value-added services will ramp
up soon as well. Unlike Covisint and World Wide Retail Exchange where the members play a
role in management, Steelscreen’s members do not participate in the role of management. The
members and transactions are kept separate from management. Steelscreen never participates in
25
the exchange. However this does not put Steelscreen at a disadvantage, Steelscreen’s
management team has extensive knowledge in the metal industry.
Steelscreen
Industry
Steel
Product Exchanged
Specific
Private & Public
Private
Proposed Benefit
Buyer & Seller
Financial Services, Transport Quality,
Product Inspection and Logistics
Commissions on Transactions
Value-added Services
Value-added Services
Profit Source(s)
Member’s Role in Management of the
exchange
None
Conclusion:
Comparing 3 different B2B Industries
By comparing the companies of Steelscreen.com (Steel industry), Covisint (Automobile
industry), and WorldWide Retail Exchange (Retail, Food and Healthcare industry), the best
practices model illustrates that all three companies share similarities even though these
companies are in diverse industries.
All three companies are privately held, making it very difficult to gain access and obtain
company information. This is illustrated by the fact that Covisint’s and Steelscreen’s
management teams would not even return our emails or phone calls! Furthermore, Covisint is so
private that a company can be a member by invitation only! We tried to register as a fictious
member on Steelscreen.com but were never granted access to join the marketplace because we
were not affiliated with the steel industry. Another similarity of the three cases includes
benefiting both the buyers and sellers, which allows for a larger and more efficient
marketplace. Value-added services are created to differentiate a company from other
competitors in a given industry. Therefore, the value-added services are different for each of the
three companies that were researched. As the paper stated earlier, the majority of B2B
companies generate revenue from fees and commissions; our cases directly illustrate this point.
The final component of the best practice model, members’ role in management, exemplifies
the diversification among these three companies. Covisint demonstrates the highest level of
member involvement with members sitting as Board of Directors. WorldWide Retail Exchange
shows the second highest level of involvement with members having equity stakes in the
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company and participating on a Governing Board. On the opposite end, Steelscreen’s members
do not have a role in management, as management does not participate in transactions on the
marketplace. Therefore, Steelscreen’s members and management team have separate roles and
never overlap in the business processes. These case studies have shown that technology should
not be acquired for technology’s sake. If technology can not be made useful, then money is
wasted, and cost savings are not realized. Many failed B2B exchanges simply thought they
would toss a pile of money at technology and wait for the profits to roll in. As with other
industries and products, time has shown that technology is only an enabler, and a business model
that successfully integrates technology is needed for an enterprise to succeed.
The table below illustrates the similarities and differences between these very diverse industries
and the best practices model that was formulated during this research process.
Industry
Covisint
Steelscreen
WWRE
Auto
Steel
Retail, Food,
Healthcare
Products Exchanged
Specific
Specific
Mostly
General
Private & Public
Private
Private
Private
Buyer & Seller
Buyer & Seller
Buyer & Seller
Connect,
Communicate &
Collaborate
Financial
Services &
Logistics
Asset Mgmt &
Demand
Aggregation
Commissions
Commissions
on Transactions
Fees &
Commissions
None
Equity Stakes
& Governing
Board
Proposed Benefit
Value-added
Services
Deriving a Profit
Members Role in
Management of the
Exchange
Members sit as
Board of
Directors
Works Cited
27
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March 11, 2004.
2. Angel, Robert. “A new dawn for CRM: This time it’s B2B.” Ivey Business Journal Online
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ABI/INFORM Global. Proquest. University of Missouri St. Louis. 17 February 2004.
http://www.proquest.com/
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customers.” Fortune Magazine, 17 April 2001.
11. Hamm, Steve. “B2B Isn’t Dead. It’s Learning.” Business Week, 18 December 2002.
12. Harrison, Laird. “B2B Survivors” Time Magazine, 24 December 2001.
13. “Practical Guide to Selling Efficiently on any B2B Exchange.” article November 26, 2003 on
www.gcis.ca/b2b_sellers_guide.html, viewed February 19, 2004.
14. “SPECIAL REPORT: Online Shopping: B2B, Take 2.” Business Week, 25 November 2003.
15. Subirana, Brian. “Steelscreen.com: Challenging and Aligning Technology and Strategy in
B2B.” The European Case Clearing House, March 2002.
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16. Wohlers, Terry. “Internet Editorial: E-Commerce: The Challenges of Creating a B2B
Exchange.” Rapid Prototyping Journal 7.2(2001): pp.122-123. ABI/INFORM
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http://www.proquest.com/
17. www.cba.hawaii.edu/aspy/aspymkfa.htm, viewed March 11, 2004.
18. www.covisint.com, viewed February 26 and March 28, 2004.
19. www.covisint.com/legal_Pub/antitrust.html, viewed February 26, 2004.
20. www.steelscreen.com, viewed April 2, 2004.
21. www.wwre.com, viewed March 28, 2004.
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