Chapter 6
Company-Centric B2B
and E-Procurement
Learning Objectives
1.
2.
3.
4.
5.
Jason C. H. Chen, Ph.D.
Professor of MIS
School of Business Administration
Gonzaga University
Spokane, WA 99223 USA
chen@jepson.gonzaga.edu
http://barney.gonzaga.edu/~chen
6.
7.
8.
9.
© Prentice Hall & Dr. Chen, Electronic Commerce
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OPENING VIGNETTE : General
Motors’ B2B Initiatives
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General Motors’
B2B Initiatives (cont.)
• The Problem
– GM sells custom-designed cars online through
its dealers’ sites avoiding channel conflict
– This collaboration requires sharing information
with dealers and suppliers
– Operational problems
– Because the automotive industry is very
competitive, GM is always looking for ways to
improve its effectiveness
– GM expects to custom-build the majority of its
cars by 2005
– The company hopes to use the system to save
billions of dollars by reducing its inventory of
finished cars
© Prentice Hall & Dr. Chen, Electronic Commerce
Describe the B2B field.
Describe the major types of B2B models.
Discuss the characteristics of the sell-side marketplace,
including auctions.
Describe the sell-side intermediary models.
Describe the characteristics of the buy-side marketplace
and e-procurement.
Explain how reverse auctions work in B2B.
Describe B2B aggregation and group purchasing models.
Describe infrastructure and standards requirements for
B2B.
Describe Web EDI, XML, and Web services.
ƒ disposing of manufacturing machines that are no
longer sufficiently productive
ƒ procurement of commodity products
3
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Two major operational problems:
General Motors’
B2B Initiatives (cont.)
General Motors’
B2B Initiatives (cont.)
– Capital assets problem
• The Solution
GM implemented its own electronic market from
which forward auctions are conducted
– GM established an extranet infrastructure called
ANX (Automotive Network eXchange)
– ANX has evolved into the consortium exchange
covisint.com supported by other automakers
– Resource procurement problem
GM automated the bidding process using reverse
auctions on its e-procurement site
ƒ Solutions and services to Connect,
Communicate, and Collaborate.
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1
General Motors’
B2B Initiatives (cont.)
General Motors’
B2B Initiatives (cont.)
– Online reverse auction prices are significantly
lower than the prices the company had been
paying for the same items previously negotiated
by manual tendering
– Administrative costs per order have been
reduced by 40%
– Most GM dealers and thousands of GM’s
suppliers are connected on a common extranet
platform
• The Results
– Within just 89 minutes after the first forward
auction opened, eight stamping presses were
sold for $1.8 million
– Off-line method, a similar item would have
sold for less than half of its online price, and
the process would have taken 4 to 6 weeks
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General Motors’
B2B Initiatives (cont.)
•
8
General Motors’
B2B Initiatives (cont.)
– B2B transactions
What can we learn…
–
© Prentice Hall & Dr. Chen, Electronic Commerce
ƒ Company can be a seller, offering goods or services
Involvement of a large company in three EC
activities:
to many corporate buyers
ƒ Company can be a buyer, seeking goods or services
1. connecting with dealers and suppliers through an
from many corporate sellers (suppliers)
extranet
2. electronically auctioning used equipment to
customers
3. conducting purchasing via electronic bidding
– A company can
ƒ employ auctions
ƒ use electronic catalogs
ƒ use other market mechanisms
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6.1 Concepts, Characteristics, and
Models of B2B EC
End of the Vignette
• Basic B2B concepts
Business-to-business e-commerce (B2B EC):
Transactions between businesses conducted
electronically over the Internet, extranets,
intranets, or private networks; also known as
eB2B (electronic B2B) or just B2B
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2
Focus on e-Business Applications
Exhibit 6.1 Key Drivers for B2B E-Commerce
Knowledge Management/Business Intelligence
Non-IT
Application
Management
Collaboration
With Suppliers
And Buyer
E-Commerce
Procurement
Network
M:1
Trading
Network
M:N
E-Channel
Management
1:N
E-Portal Management
E-Business, E-Services
Businesses &
Consumers (CRM)
Businesses (PRM)
E-Customer Relationship
Integration
SCM/ERP/Legacy Appls
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Concepts, Characteristics, and Models
of B2B EC (cont.)
Personalize
And Customize
Mobile
Commerce
e-CRM
e-Marketplaces
Exchange
e-Learning
Publish
And Promote
Online
Ordering
B2C, B2B
Actions
Business values
Multichannel
1st
Generation
1998
2nd
Generation
1999
3rd
Generation
2000
4th
Generation
2001
Internal/External
Business
Process
Management
Web
Services
Intelligent
Systems
Expert Sales
System
5th
Generation
2002 and Beyond
© Prentice Hall & Dr. Chen, Electronic Commerce
• Types of materials
– Parties to the transaction
Direct materials: Materials used in the
– ________
production of a product (e.g., steel in a car or
paper in a book)
Indirect materials: Materials used to support
– ________
production (e.g., office supplies or light bulbs)
ƒ MROs (maintenance, repairs, and operations):
Online intermediary An online third party that
ƒ _________________:
brokers a transaction online between a buyer and a
seller; can be virtual or click-and-mortar
– Types of transactions
Spot buying The purchase of goods and services
ƒ ____________:
as they are needed, usually at prevailing market
prices
Strategic sourcing Purchases involving long-term
ƒ ________________:
contracts that are usually based on private
negotiations between sellers and buyers
Indirect materials used in activities that support
production
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© Prentice Hall & Dr. Chen, Electronic Commerce
Concepts, Characteristics, and Models
of B2B EC (cont.)
Concepts, Characteristics, and Models
of B2B EC (cont.)
• Direction of trade
• Basic B2B transaction types
16
– Sell -side (1:M)
– Vertical marketplaces: Markets that deal with
one industry or industry segment (e.g.,
electronics, cars, steel, chemicals)
– Horizontal marketplaces: Markets that
concentrate on a service, material, or a product
that is used in all types of industries (e.g., office
supplies, PCs)
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B2B Characteristics (cont.)
• B2B characteristics
© Prentice Hall & Dr. Chen, Electronic Commerce
e-Government
Collaborative
Commerce
One seller to many buyers
– Buy -side (M:1)
One buyer from many sellers
– Exchanges (M:M)
Many sellers to many buyers
– Collaborative commerce(M and Connected)
Communication and sharing of information, design, and
planning among business partners
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3
Concepts, Characteristics, and Models
of B2B EC (cont.)
– One-to-many and many-to-one: companycentric transactions
ƒ Company-centric EC: E-commerce that focuses on a
single company’s buying needs (many-to-one, or
buy-side) or selling needs (one-to-many, or sellside)
ƒ Private e-marketplaces: Markets in which the
individual sell-side or buy side company has
complete control over participation in the selling or
buying transaction
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© Prentice Hall & Dr. Chen, Electronic Commerce
Concepts, Characteristics, and Models
of B2B EC (cont.)
Concepts, Characteristics, and Models
of B2B EC (cont.)
• Many-to-many: exchanges
• Collaborative commerce (C-commerce)
– Exchanges (trading communities or trading
exchanges): Many-to-many e-marketplaces, usually
owned and run by a third party or a consortium, in
which many buyers and many sellers meet
electronically to trade with each other; also called
trading communities or trading exchanges
– Public e-marketplaces: Third-party exchanges that are
open to all interested parties (sellers and buyers)
© Prentice Hall & Dr. Chen, Electronic Commerce
– Communication, design, planning, and
information sharing among business partners
– To qualify as C-commerce, the activities that
are shared must represent far more than just
financial transactions (e.g., design,
manufacture, or management)
21
Concepts, Characteristics, and Models
of B2B EC (cont.)
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Concepts, Characteristics, and Models
of B2B EC (cont.)
– B2B private e-marketplace provides a company
with high supply chain power and high
capabilities for online interactions
– Joining a public e-marketplace provides a
business with high buying and selling
capabilities, but will result in low supply chain
power
– Companies that choose an intermediary to do
their buying and selling will be low on both
supply chain power and buying/selling
capabilities
• Supply chain relationships in B2B
– Supply chain process consists of a number of
interrelated subprocesses and roles
ƒ acquisition of materials from suppliers
ƒ processing of a product or service
ƒ packaging it and moving it to distributors and
retailers
ƒ purchase of a product by the end consumer
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4
Concepts, Characteristics, and Models
of B2B EC (cont.)
6.2 One-to-Many:
Sell-Side Marketplaces
• Benefits of B2B
–
–
–
–
Eliminates paper and reduces administrative costs.
Expedites cycle time
Lowers search costs and time for buyers
Increases productivity of employees dealing with
buying and/or selling
•
•
• Reduces errors and improves quality of services.
1. selling from electronic catalogs
2. selling via forward auctions (GM case)
3. one-to-one selling
– Reduces inventory levels and costs
– Increases production flexibility, permitting just-intime delivery
– Facilitates mass customization
– Increases opportunities for collaboration
© Prentice Hall & Dr. Chen, Electronic Commerce
Sell-side e-marketplace: A Web-based
marketplace in which one company sells
to many business buyers from e-catalogs
or auctions, frequently over an extranet
Three major direct sales methods:
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One-to-Many: Sell-Side Marketplaces (cont.)
One-to-Many:
Sell-Side Marketplaces (cont.)
• B2B sellers
– click-and-mortar manufacturers or intermediaries,
usually distributors or wholesalers
• Customer service
– online sellers can provide sophisticated customer
services
• Direct Sales from Catalogues
– Configuration and customization
ƒ customize products
ƒ get price quotes
ƒ submit orders
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One-to-Many:
Sell-Side Marketplaces (cont.)
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6.3 Selling via Auctions
• Major benefits of direct sales are:
–
–
–
–
–
–
–
–
• Using auctions on the sell
side
Lower order-processing costs and less paperwork
A faster ordering cycle
Fewer errors in ordering and product configuration
Lower search costs of products for buyers
Lower search costs of finding buyers for sellers
Sellers can advertise and communicate online
Lower logistics costs
Ability to offer different catalogs and prices to
different customers
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–
–
–
–
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Revenue generation
Cost savings
Increased page views
Member acquisition and
retention
30
5
Using Intermediaries in Auctions
Selling via Auctions (cont.)
(cont.)
– Benefits of using intermediaries
• Selling from the company’s own site
ƒ no additional resources are required
ƒ auction set up to show the branding
– The company will have to pay for infrastructure and
operate and maintain the auction site
– If then company already has an electronic marketplace
for selling from e-catalogs, the additional cost may not
be too high
(company name) of the merchant rather
than the intermediary’s name
ƒ intermediary does the work of:
• Using intermediaries
– controlling data on Web traffic, page views, and
member registration
– setting all the auction parameters (transaction fee
structure, user interface, and reports)
– integrating the information flow and logistics
– An intermediary may conduct private auctions for a
seller, either from the intermediary’s or the seller’s site
– A company may choose to conduct auctions in a public
marketplace, using a third-party hosting company
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6.4 Sell-Side Cases
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Sell-Side Cases (cont.)
• Customer service
• Direct sales: Cisco Systems
– Applications offered:
ƒ software downloads
ƒ defect tracking
ƒ technical advice
– World’s leading producer of routers, switches,
and network interconnection services
– Cisco’s portal began with technical support for
customers and developed into one of the
world’s largest direct sales EC sites
– 85% of customer service inquiries and 95% of
software updates are delivered online
• Online ordering by customers
– Provides online pricing and configuration tools to
customers
– 98% are now placed through Cisco Connection
Online (CCO)
• Order status
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Sell-Side Cases (cont.)
34
Sell-Side Cases (cont.)
• B2B intermediary: Boeing’s parts marketplace
• Benefits
– World’s largest maker of airplanes for commercial and
military customers
– Major goal of Boeing’s intermediary parts market,
called PART is supporting customers’ maintenance
needs as a customer service
– Online strategy is to provide a single point of online
access through which airlines (buyers) and the
maintenance and parts providers (suppliers) can access
data about the parts they need
– Began using traditional EDI
– Reduced operating costs for order taking
– Enhanced technical support and customer
service
– Reduced technical support staff cost
– Reduced software distribution costs
– Faster service
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6
Sell-Side Cases (cont.)
Sell-Side Cases (cont.)
– 1996, Boeing introduced its PART page on
the Internet
– Customers around the world could
– Boeing OnLine Data (BOLD) enables
mechanics and technicians at the airport to
access the technical manuals they need for
repairs
– These manuals are now available in digital
form, and mechanics and technicians can access
them via wireline or wireless devices
ƒ check parts availability and pricing
ƒ order parts
ƒ track order status
– Less than a year later, about 50 percent of
Boeing’s customers used PART for parts
orders and customer service inquiries
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Examples
Examples of
of Different
Different B2B
B2B E-Commerce
E-Commerce Sites
Sites
Used
Used by
by Organizational
Organizational Buyers
Buyers (and
(and Sellers)
Sellers)
All sellers
and buyers
at all levels
• Buy-side e-marketplace: A corporate-based
acquisition site that uses reverse auctions,
negotiations, group purchasing, or any other
e-procurement method
Exchanges
“Vertical” depth
across firms at
different levels of
production &
distribution
process
38
6.5 One-from-Many: Buy-Side
Marketplaces and E-Procurement
Collaboration
Hub
Best search
tool sites
© Prentice Hall & Dr. Chen, Electronic Commerce
Communities
Procurement Hub
Catalog site
Best search
tool sites
One of two levels
(a seller to
a buyer)
One
business
One
specific
industry
Many
industries
“Horizontal” breadth of goods and services
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One-from-Many: Buy-Side Marketplaces and
E-Procurement (cont.)
40
Benefits of E-Procurement
• Benefits of e-procurement
• Inefficiencies in traditional procurement
management
– Increasing the productivity of purchasing agents
– Lowering purchase prices through product
standardization and consolidation of purchases
– Improving information flow and management
– Minimizing the purchases made from noncontract
vendors. Improving the payment process
– Establishing efficient, collaborative supplier relations
– Ensuring delivery on time, every time
– Reducing the skill requirements and training needs of
purchasing agents
– Procurement management: The coordination of all the
activities relating to purchasing goods and services
needed to accomplish the mission of an organization
– Maverick buying: Unplanned purchases of items
needed quickly, often at non-pre-negotiated, higher
prices
• e-procurement: The electronic acquisition
of goods and services for organizations
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7
One-from-Many: Buy-Side
Marketplaces and E-Procurement (cont.)
Exhibit 6.6 The E-Procurement Process: A Buyer’s View
Search for Vendors and Products
E-catalogs, brochures,
Conventions, exhibits,
Telephone calls, visits.
Quality Vendors
Which vendors we can do business with?
Research firms, financial stability,
credit history.
Initiate a Purchase Order (PO)
Electronic form or rigger ready order.
One-from-Many: Buy-Side
Marketplaces and EProcurement
Select a Market Mechanism
Private, public, auctions, exchange.
Arrange a pick-up or Receive shipment
Check shipping document
Tendering system has a special process.
Compare and Negotiate
Price, financing , delivery,
Quality, etc.
Make Payment
Approve payment
Arrange money transfer.
Make a Purchase
(Individual or committee)
Have a contract.
Arrange payment.
Pre-Purchase Activities
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Pre-Purchase Activities
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B2B e-Procurement Processes
Seller/Supplier
e-Marketplaces
Supplier
Trading Platform
Supplier
Implementing E-Procurement
Buyer/Wholesale
• Implementing e-procurement—major eprocurement implementation issues
Buyer/
Wholesale
Buyer/Wholesale
Trading Platform
– Fitting e-procurement into the company EC strategy
– Reviewing and changing the procurement process itself
– Providing interfaces between
e-procurement with integrated enterprisewide information
systems such as ERP or supply chain management (SCM)
– Coordinating the buyer’s information system with that of
the sellers; sellers have many potential buyers
– Consolidating the number of regular suppliers to a
minimum and assuring integration with their information
systems, and if possible with their business processes
B2B e-Procurement Process System
•Order mgt.
•Finance mgt.
•Shipping mgt.
•Customer mgt.
Supply Chain
供應鏈
•e-catalogue
•inquiry/
negotiation
•quick ordering
•account mgt.
e-procurement process system
Demand Chain
需求鏈
Material Flow
Information Flow
Money Flow
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The three Ds model.
Unbundling the Business
Digital
convergence
New Business
Disintermediation
Infrastructure
Traditional
Business
Product Innovation
Customer Relationship
Management (CRM)
Focus
Operations
(Scale)
Products
(Speed)
Customers
(Scope)
Disaggregation
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8
General Purchasing Process
6.6 Buy-Side E-Marketplaces: Reverse
Auctions
Forecast Demand
Request for Proposal/Quote (RFP/RFQ)
• One of the major methods of e-procurement
is through reverse auctions (tendering or
bidding model)
Bid
Supplier / Seller
• The reverse auction method is the most
common model for large MRO purchases as
it provides considerable savings
Place Orders
Process Orders
Shipping Orders
Buyer
request for quote (RFQ): The “invitation” to
participate in a tendering (bidding) system
Negotiate Contract
Receiving Orders
Invoicing
Payment
Vender Performance Tracking & Management
Customer Service
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• Benefits of TPN
• Procurement revolution at GE—Trading Process
Network (TPN) Post
– labor involved in the procurement process declined by
30%
– cut by 50% staff involved in the procurement process
and redeployed those workers into other jobs
– reduced the number of days to complete a contract by
half
– invoices were automatically reconciled with purchase
orders
– procurement departments around the world were able to
share information about their best suppliers
– With this online system, the sourcing department
received the requisitions electronically from its
internal customers (i.e., in the different
departments) and sent off a bid package to suppliers
around the world via the Internet
– The system automatically pulled the correct
drawings and attached them to the electronic
requisition forms
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Exhibit 6.8 The Reverse Auction Process (Sellers Bid)
Posting Bids Invitation
Contract &
Purchasing
Department
Requirement
Bid Invitation
Enterprise
Web
Restricted
(Sellers)
Bid
E-mail
Bid
E-mail
Bid
Bid
Rejection
Supplier 1
Bid
Evaluation
Rejection
Supplier 2
Acceptance
Supplier 3
Bid
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• GXS Express Marketplaces is an expanded
system that makes it a public posting place for
other buyers
– Suppliers gain instant access to global buyers
– Dramatically improve the productivity of their
bidding and sales activities
– Increased sales volume
– Expanded market reach and ability to find new buyers
– Lower administration costs
– Shorter requisition cycle time
– Improved sales staff productivity
– Streamlined bidding process
(Sellers)
Contract &
Purchasing
Department
© Prentice Hall & Dr. Chen, Electronic Commerce
Reverse Auctions
A Pioneer: General Electric’s TPN (cont.)
(Sellers)
E-mail
Evaluation of Bids
50
Reverse Auctions
A Pioneer: General Electric’s TPN (cont.)
Reverse Auctions
A Pioneer: General Electric’s TPN
(Buyers)
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9
Other E-Procurement Methods (cont.)
6.7 Other E-Procurement Methods
Group purchasing The aggregation of
• _________________:
orders from several buyers into volume
purchases so that better prices can be
negotiated
Internal marketplace The aggregated
• __________________:
catalogs of all approved suppliers combined
into a single internal electronic catalog
• Benefits of internal marketplaces
– Internal aggregation—companywide orders are
aggregated using the Web and replenished
automatically
– External aggregation—provide SMEs with better
prices, selection, and services by aggregating
demand online and then either negotiating with
suppliers or conducting reverse auctions
– corporate buyers quickly find what they want,
check availability and delivery times, and
complete an electronic requisition form
– reduce number of regular suppliers
– easy financial controls
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[Stage3]
Returns
P
Confirm
(Price OK)
B
...
G
RFQ
u
[Stage2]
Shipping / Receiving Orders
y
…
…
S
u
p
p
l
i
e
r
/
S
e
l
l
e
r
[Stage1-a]
Forecast Demand
RFQ
Response
RFQ
Bid
Negotiate Contract
Place Orders
Process Orders
Shipping Orders
Receiving Orders
Invoicing
Payment
VPTM
Refund Process
O
56
Other
Eprocurement
Methods
(cont.)
Group Purchasing Organization Process
[Stage1-b]
© Prentice Hall & Dr. Chen, Electronic Commerce
Shipping / Receiving Orders
Invoice
Payment
Returns
e
r
[Stage4]
Refund Process
VPTM : Vender Performance Tracking & Management
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58
Other E-Procurement
Methods (cont.)
6.8 Infrastructure for B2B
• Major infrastructures needed for B2B
marketplaces
• Electronic data interchange (EDI): The electronic
transfer of specially formatted standard business
documents, such as bills, orders, and
confirmations sent between business partners
• Value-added networks (VANs): Private, third-party
managed networks that add communications
services and security to existing common carriers;
used to implement traditional EDI systems
Telecommunications networks and protocols
– _____________________________________
Server(s) for hosting the databases and
– __________
the applications
Software for various activities for
– __________
executing the sell-side activities, buy-side
activities, PRM, and building a storefront
Security for hardware and software
– _________
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10
Other E-Procurement
Methods (cont.)
Other E-Procurement
Methods (cont.)
• Integration
– Integration with existing internal infrastructure
and applications
ƒ EC applications of any kind need to be connected to
the existing internal information systems
• Internet-based (Web) EDI: EDI that runs on the
Internet and is widely accessible to most
companies, including SMEs
© Prentice Hall & Dr. Chen, Electronic Commerce
– Integration with business partners
ƒ EC can be integrated more easily with internal
systems than with external ones
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© Prentice Hall & Dr. Chen, Electronic Commerce
Other E-Procurement
Methods (cont.)
Other E-Procurement
Methods (cont.)
–
• The role of standards and XML in B2B
integration
the rigid ranges of EDI
2. Message content can be easily read and
understood by people using standard browsers
3. XML-based technologies require less-specialized
skills
63
© Prentice Hall & Dr. Chen, Electronic Commerce
Other E-Procurement
Methods (cont.)
64
Managerial Issues
1.
2.
3.
4.
5.
Can we justify the cost of B2B applications?
Which vendor(s) should we select?
Which B2B model(s) should we use?
Should we restructure our procurement system?
What restructuring will be required for the shift
to e-procurement?
6. What integration would be useful?
7. What are the ethical issues in B2B?
8. Will there be massive disintermediation?
• Web services: An architecture enabling
assembly of distributed applications from
software services and tying them together
© Prentice Hall & Dr. Chen, Electronic Commerce
XML can overcome EDI barriers for three
reasons:
1. XML is a flexible language, therefore it expands
XML (eXtensible Markup Language): Standard
(and its variants) used to improve compatibility
between the disparate systems of business
partners by defining the meaning of data in
business documents
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Summary
Summary (cont.)
1. The B2B field: EC activities between businesses
2. The major B2B models: sell-side; buy-side;
trade exchanges; collaborative commerce
3. The characteristics of sell-side marketplaces:
online direct sale by one seller to many buyers
4. Sell-side intermediaries: provide value-added
services to manufacturers and business
customers
5. The characteristics of buy-side marketplaces and
e-procurement: expedite purchasing, save on
item and administrative costs, and gain better
control over the purchasing process.
6. B2B reverse auctions: tendering system used by
buyers to collect bids electronically from suppliers
7. B2B aggregation and group purchasing: increasing
the exposure and the bargaining power of
companies can be done by aggregating either the
buyers or the sellers.
8. Infrastructure and standards in B2B: networks and
protocols, multiple servers, application software,
and security.
9. Web-based EDI, XML, and Web services:
connectivity of B2B is facilitated by Web services.
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© Prentice Hall & Dr. Chen, Electronic Commerce
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End of Chapter 6
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