Overview Ch. 5
 Describe the major types of B2B models
 Describe the characteristics of the sell-side
marketplace
 Describe the sell-side intermediaries models
 Describe the characteristics of the buy-side
marketplace and e-procurement
 Explain how forward and backward auctions work in
B2B
 Describe B2B aggregation and group purchasing
models
 Describe collaborative e-commerce
 Describe infrastructure for B2B
Public B2B Exchanges
Learning Objectives
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Define e-marketplaces and exchanges
List the various types of e-marketplaces
Describe B2B portals
Describe third-party exchanges
Distinguish between e-procurement and
e-selling consortia
Describe the various ownership and revenue models
Describe the support mechanisms offered by
exchanges
Describe networks of exchanges and exchange
management
Describe the CSF of exchanges
Describe the major support services of B2B
An Overview 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
An Overview B2B Electronic Exchanges [2]
 Market maker
 the third-party that operates an exchange (and in
many cases, also owns the exchange)
 Companies that use exchanges are pleased with
them and plan to increase the number of
exchanges they participate
 Traders expect to more than double the value of
transactions that they do through the exchanges
Trading Communities: Information Flow and
Access to Information
Classification of Exchanges
 Systematic sourcing
 purchasing done in long-term supplier-buyer
relationships
 Spot sourcing
 unplanned purchases made as the need arises
 Vertical exchange
 an exchanges whose members are in one industry or
industry segment
 Horizontal exchange
 an exchanges that handles materials traded in
several different industries
Classification of Exchanges [2]
Direct
Vertical Distributors
Systematic
Sourcing
Plastics.com
Papersite.com
Methods: Aggregation,
fixed/negotiated prices
Vertical Exchanges
Spot
Sourcing
eSteel.com
ChemConnect.com
Methods: Matching,
dynamic pricing
Indirect (MRO)
Horizontal Distributors
MRO.com
Methods: Aggregation,
fixed/negotiated prices
Horizontal Exchanges
EmployEase.com
Methods: Matching,
dynamic pricing
Dynamic Pricing
A rapid movement of prices over time,
and possibly across customers, as a
result of supply and demand
Stock exchanges sometimes change
minute by minute
Auction prices vary all the time
Ownership of Exchanges
 An industry giant
 A neutral entrepreneur
 a third-party intermediary (ChemConnect.com)
 The consortia (or co-op)
 several industry players set up an exchange
(Covisint.com)
Governance of Exchanges
 Exchanges governed by guidelines and rules
 How the exchange operates
 What the requirements are to join the exchange
 What fees are involved
 What rules need to be followed
 Security and privacy for documents
 Contract terms between an exchange and
buyers/sellers
 Assurances that the exchange is fair
Organization of Exchanges
 Membership
 Generate revenue
• Transaction, Registration, Annual membership fees
 Qualification process
 Deposit may be required
 Limits set on how much each member can trade
 Site access and security
 Information should be carefully protected— competitors
congregate in the same exchange
 Prevent illegal offers and bids
 List of individuals who are authorized to represent the
participating companies
 Services
 Buyer-seller registration, qualification, coordination, etc
Gain and Risks in B2B Exchanges
For Buyers
Potential
Gains
For Sellers
One stop shopping, huge variety
New sales channel
Search and comparison shopping
No physical store is needed
Order from any location
Reduce ordering errors
Make one order from several
suppliers
Reach new customers at little
extra cost
Unlimited, detailed information
Promote the business via the
exchange
Status review and easy reordering
Can go global more easily
Fast delivery
Potential
Risks
Unknown vendors; may not be
reliable
Loss of direct CRM
Loss of customer service quality
(inability to compare all services)
Price wars
Possible loss of customers to
competitors
B2B Portals
Information portals for businesses
Vortals
 B2B portals that focus on a single industry or
industry segment
• “vertical portals”
Third-Party (Trading) Exchanges
Electronic intermediaries
 Do not favor either sellers or buyers—neutral
 Without a built-in constituency of sellers or
buyers they have a problem attracting enough
buyers and sellers to attain financial viability
Liquidity
 the result of having a sufficient number of
participants in the marketplace as well as a
sufficient transaction volume
The Supplier Aggregation Model
The Buyer Aggregation Model
Requests
Responses - - - - - - -
Suitability of Third-Party Exchanges
Fragmented markets
 Markets that have large numbers of both
buyers and sellers
 Mainly suitable for MROs
Buyer-concentrated markets
 Several large companies sell to a very large
number of buyers
Seller-concentrated markets
 Several large companies do most of the
buying from a large number of suppliers
Consortium Trading Exchanges (CTE)
 CTE (consortium)
 An exchange formed and operated by a group of
major companies to provide industry-wide transaction
services
 The major goal of CTEs
 Provide industry-wide transaction services that
support buying and selling
 Types of CTEs:
 Vertical, purchasing-oriented
 Horizontal, purchasing-oriented
 Vertical, selling-oriented
 Horizontal, selling-oriented
Consortium Trading Exchanges (CTE) [2]
 Purchasing-Oriented (Procurement) Consortia can be:
 Vertical purchasing-oriented
• All the players are in the same industry
• Support buying and selling
 Horizontal purchasing-oriented
• Owner-operators are large companies from different
industries
• Improving the supply chain
Consortium Trading Exchanges (CTE) [3]
 Selling-oriented consortia
 Vertical exchanges
 Thousands of potential buyers within a
particular industry
Legal challenges for B2B consortia
 Exchanges introduce a level of collaboration
among both competitors and business
partners
 Antitrust and other competition laws must be
considered
Critical Success Factors of Consortia
Size of industry
Ability to drive user adoption
Elasticity—measure of incremental
spending by buyers as a result of savings
generated
Standardization of commodity-like
products
Management of intensive information flow
Smoothing inefficiencies in supply chain
Dynamic Trading: Auctions and Matching
 Dynamic trading
 Exchange trading that occurs in situations when
prices are being determined by supply and demand
(dynamic pricing)
 Matching
 Market makers conduct matching supply and
demand (e.g., stocks)
 More complex than auctions because they match:
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Prices
Quantities
Times
Locations
Dynamic Trading: Auctions and Matching [2]
 Auctions
 Private trading rooms—members conduct auctions at
the exchange
 Auction services may be one of the activities
 Exchange may be fully dedicated to auctions
 Can conduct many-to-many public auctions
Building and Integrating Marketplaces &
Exchanges
 Integration
 Between 3rd-party exchange and back office systems
of participants
 Across multiple, incompatible exchanges
 External communications
 Web/client access
 Data exchange
 Direct application integration
 Shared process
Building and Integrating Marketplaces &
Exchanges [2]
 Process and information coordination—how to
coordinate external communications with internal
information systems
External process
Data transformation
Internal process
Exception handling
 System and information management—involves
management of:
Software
Information components
Hardware
Managing Exchanges
 Revenue models
 Transaction fees
 Fee for service
 Membership fees
 Advertisement fees
 Networks of exchanges
 “First mover” primary objective is the acquisition of
buyers and sellers
 Integration with other companies or exchanges
 Some exchanges are beginning to integrate in order
to better serve their customers
Managing Exchanges [2]
Centralized management
 One market builder builds and operate
several exchanges
• Manages all the exchanges’ catalogs, auction
places, discussion forums
• Centralizes: accounting, finance, human
resources, IT services
 Third-party vendors providing logistic services
and payment systems are more efficient when
supplying services for “families ” of exchanges
Critical Success Factors
Early liquidity
 Liquidity refers to volume of business
conducted
 Business’s chance of survival is best when
liquidity is achieved early
Right owners
 Partner with companies that can bring
liquidity to the exchange
 Best owner may be intermediary that can
push both buyers and sellers
Critical Success Factors [2]
Right governance
 Good management and fair /effective
operations and rules are critical
 Governance provides:
• The rules for the exchange
• Minimized conflicts
• Decision making support
 Good management induces necessary liquidity
Critical Success Factors [3]
Openness
 Exchanges must be open to all from:
• Organizational point of view
• Technical point of view
 Open standards require:
• Commitment by all involved
• Universal agreement on the standards
 Using the wrong standards can hurt the
exchange
Critical Success Factors [4]
Full range of services
 Participants are attracted by an exchange that
helps cut costs
 Exchanges team up with banks, logistic
services and IT companies to help
Importance of domain expertise
 Market makers need an in-depth
understanding of:
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The industry
Business processes inherent in the industry
Knowledge of industry structure
Government and policy stipulations
Critical Success Factors [5]
Targeting inefficient industry processes
 Contribute to increased costs and time delays
 Vertical exchanges can add value
Targeting right industries
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Large base of transactions
Many fragmented buyers and sellers
Difficulties bringing together buyers and sellers
High vendor and product search/comparison
costs
 Strong pressure to cut expenses
Critical Success Factors [6]
Brand building is critical
 Increase switching costs by adding features
and functionality
 Invest in:
• Gaining brand awareness
• Attracting businesses to exchange
• Customer retention
Critical Success Factors [7]
Exploiting economics of scope
 Value-added services make exchange
compelling
• Industry news
• Expert advice
• Detailed product specification sheets
 Adjacent services
• Banks and financial information providers
• Identification supported by sophisticated digital
certificate architecture
Critical Success Factors [8]
 Garner diverse and
multiple revenue
streams
 Software licensing
 Advertising
 Sponsorship
 Critical mass of users
will garner more
value-added services
 Auction services
 Financial services
 Business reporting
 Data mining services
Critical Success Factors [9]
Blending content, community, and
commerce
 Content and community perspective—stimulate
traffic
 EC transaction perspective—creates higher level
of customer “stickiness”
Managing channel conflict
 Hostile phase as buyers interact directly with
sellers (disintermediation of supply chain)
 Short-term revenues impacted by backlash from
existing fulfillment channels result in price
erosion affecting medium-term profitability
Communication Networks and Extranets for B2B
 The Internet
 A public, global communications network that provides direct
connectivity to anyone over a local area network (LAN) via an
Internet service provider (ISP) or directly via an ISP
 Intranets
 A corporate LAN or wide area network (WAN) that uses Internet
technology and is secured behind a company’s firewalls
 Extranets
 A network that uses a virtual private network (VPN) to link
intranets in different locations over the Internet; an “extended
intranet”
 Protected environment of an extranet allows partners to securely
collaborate and share information
 Virtual private network (VPN)
 A network that creates tunnels of secured data flows, using
cryptography and authorization algorithms, to provide secure
transport of private communications over the public Internet
Implementation Issues
 Problems with exchanges
 Problems with public exchanges
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High transaction fees
Sharing information
Unclear cost savings
Recruiting suppliers
Too many exchanges
Difficult to coordinate supply chain process
 Private exchanges: e-marketplaces that are
owned and operated by an industry giant or a
consortium
 Problems with private exchanges
 Lack of trust
 Liquidity is questionable
Summary
 Exchanges are e-marketplaces that provide a
trading platform for conducting business among
many buyers, sellers and other business partners
 E-marketplaces include B2B portals, third-party
trading exchanges, consortium trading exchanges
and dynamic trading floors
 B2B portals are gateways to B2B communityrelated information
 A Consortium Trading Exchange (CTE) is an
exchange formed and operated by a group of
major companies
Exercise
Read article in the book and answer the
questions:
 Page 260-261
 Page 286-287
Give an example of a benefit of a SCM
system. What would it improve?
Describe the bullwhip effect and give an
example!
Describe some of the difficulties of
collaborative planning!