Chapter 6: Business-to-Business Electronic Commerce pps

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Chapter 6
Business-to-Business
Electronic Commerce

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Learning Objectives

Distinguish between B2B and B2C

Identify the relationship between B2B and
supply chain management

Classify the categories of B2B models and
architectures according to the nature of the
electronic stores and malls

Describe typical cases of Supplier, Buyers,
and Intermediary-Oriented Market Places

Outline the current and next-generation
characteristics of B2B Electronic Commerce

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Distinguish between VAN-based an Internet-
base EDI

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Describe the role of Just-In-Time in B2B
Electronic Commerce

Describe how software agents can facilitate
communication between sellers and buyers

Describe how marketing is done in B2B
Learning Objectives (cont.)

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Trading Process Network (TPN)
Post in General Electric

General Electric (GE)
Factories at GE
Lighting division
used to send
hundreds of
Requisitions For
Quotations (RFQs)
to the corporate
sourcing department
each day for low-
value machine parts.
For each requisition, the
accompanying blueprints
had to be requested from
storage, retrieved from

the vault, transported to
the processing site,
photocopied, folded,
attached to paper
requisition forms with
quote sheets, stuffed into
envelopes and mailed
out.
This process took at
least 7 days and was
so complex and time-
consuming that the
sourcing department
normally sent out bid
packages only to two
or three suppliers at
a time.

Its purchasing was inefficient, involved too many
administrative transactions
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GE is conducting electronic bids, no paperwork

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60%of the staff involved in
procurement have been
redeployed. The sourcing
department has at least 6-8 free

days a month to concentrate on
strategic activities rather than
on paperwork, photocopying
and envelope stuffing it had to
do when the process was
manual.

Labor involved in procurement
declined by 30%. At the same
time, materials costs declined
5%-20% due to the ability to
reach a wider base of suppliers
online.

It used to take 18-23 days to identify
suppliers, prepare a request for bid,
negotiate a price and award the
contract to a supplier. It now takes
9-11 days.

With the transaction handled
electronically from beginning to
end, invoices are automatically
reconciled with purchase orders,
reflecting any modifications that
happen along the way.

GE Procurement departments
across the world now share
information about their best

suppliers.

Benefits of using TPN
Trading Process Network (TPN)
Post in General Electric ( cont.)

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Supply Chain

Definition

All activities associated with the flow and transformation
of goods from raw materials to end users
2
nd
Tier
Supplier
Upstream Internal Downstream
2
nd
Tier
Supplier
2
nd
Tier
Supplier
1
st
Tier

Supplier
1
st
Tier
Supplier
Assembly/
Manufacturing and
Packaging
Distribution
Centers
Retailers
Customers
Grain
Producer
Processing
Facility
Packaging Distributor
Store
Customers
Corrugate
Manufacturer
Lumber
Company
Label
Manufacturer
Grain
Cereal
Packaged
Cereal
Labels

Word
Paperboard

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Characteristics of B2B EC
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Key Entities of B2B EC
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Buying company with procurement management perspective
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Selling company with marketing management perspective
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Electronic Intermediary, an optional third party directory service
provider (the scope of service may be extended to order fulfillment)
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Deliverer who can fulfill a just-in-time delivery

Network platform such as the Internet, VAN, intranet and extranet
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Protocol of communication such as EDI and comparison
shopping possibly using software agents
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Back-end information system possibly implemented using the
intranet and Enterprise Resource Planning (ERP) systems

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Relationship with Electronic Marketing

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Supplier-oriented marketing

Used to sell the company’s products and services
to business customers on the Internet
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Electronic catalogs are basically the same as that
for B2C EC, but they may be customized

Using electronic auctions to liquidate surpluses
Characteristics of B2B EC (cont.)
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Relationship with Procurement Management
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Purchasing company’s point of view : a medium of
achieving the goals of procurement management
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Procurement management’s point of view : the
buyer-oriented market can be effective
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Using a RFQ-bidding mechanism

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Relationship with Electronic Intermediaries
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Similar to the B2B electronic intermediaries, but
the customers are businesses


Also, special intermediaries for matching buyers
and sellers, bartering etc.
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Relationship with intranet are very important
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Relationship with extranets
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A dedicated network between business partners
or a secured public network like the Internet
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Implementing a virtually private network (VPN) to
improve internet security
Characteristics of B2B EC (cont.)

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Models of B2B EC
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Supplier-Oriented Market Place
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Individual consumers and business buyers use
the same supplier-provided market place (May
pay different prices due to quantity discount)
B2C E-commerce
Consumers
B2B E-Commerce
Business
Customers
Supplier’s
Products Catalog

Customer’s
Order Information
Supplier’s
Electronic Mall

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Buyer-Oriented Market Place
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Buyer opens a market on its own server and invites
potential suppliers to bid on RFQs
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Offer opportunity to committed suppliers
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BUT as the number of such sites increase, only very
big buyers can afford to fully utilize this approach
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OVERCOME with the aid of software agents
Models of B2B EC (cont.)
Business
Suppliers
Buyer’s
Products
Catalog, RFQ
Suppliers’
Bids, Information
Buyer’s
Electronic Mall

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Intermediary-Oriented Market Place
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Establish an electronic intermediary company
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Similar to an intermediary-based B2C mall; bring buyers
and suppliers (bidders) to one place
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The corporate information systems need tight coupling
with the intermediary electronic mall
Models of B2B EC (cont.)
Business
Customers
Business
Suppliers
Shared
Products Catalogs
Supplier’s
Product Information
Intermediary’s
Electronic Mall
Customer’s
Order Information

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Procurement Management Using
B2B EC Platform


Purchasing is now a strategic function, to increase profit
margins

By automating and streamlining the laborious routine of the
purchasing function, purchasing professionals can focus on
more strategic purchases, achieving the following goals:

Reducing purchasing cycle time and cost
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Enhancing budgetary control
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Eliminating administrative errors
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Increasing buyers’ productivity
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Lowering prices through product standardization and
consolidation of purchases
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Better information management;
e.g. supplier’s information and pricing information
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Improving the payment process

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Case Study of Supplier-Oriented Market Place:
CISCO Connection Online
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Customer Service— Cisco Connection online


Online Ordering— Internet Product Center builds
virtually all its products to order

Finding Order Status— gives the customers
tools to find answers to order status inquiries by
themselves

Benefits— save the company $363 million per
year from technical support, human resources,
software distribution and marketing material
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The Future— expect online sales to grow more
than 60% of total volume in 1999

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Case Study of Customer-Oriented Market Place:
GE’s TPN Post
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Provides a chance for sellers to participate in the
bidding process of GE using the following procedure:
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Buyers prepare bidding project information
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Buyers post the bidding projects on the Internet
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Buyers identify potential suppliers
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Buyers invite suppliers to bid on projects

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Suppliers download the project information from the
Internet
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Suppliers electronically submit bids for projects
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Buyers evaluate the suppliers’ bids and negotiate online
to achieve the ‘best deal’
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Buyers accept the bid that best meets their requirements

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The benefits of joining GE TPN Post
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As buyers
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Identify and build partnerships with new
suppliers worldwide
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Strengthen relationships and
streamline sourcing processes with
current business partners
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Rapidly distribute information and
specifications to business partners
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Transmit electronic drawings to
multiple suppliers simultaneously


Cut sourcing cycle times and reduce
costs for sourced goods
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Quickly receive and compare bids from
large number of suppliers to negotiate
better prices
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As Sellers
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Boost Sales
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Expand market reach
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Cut costs for sales and
marketing activities
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Shorten the selling cycle
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Improve sales
productivity
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Streamline the bidding
process
Case Study of Customer-Oriented Market Place:
GE’s TPN Post (cont.)

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Case Study of Intermediary-Oriented Market Place:

Boeing’s PART

Boeing’s PART Case
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Acts as an intermediary between the
airlines and parts’ suppliers

Provides a single point of online access
through which airlines and parts providers
can access the data needed
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Goal: provide its customers with one-stop
shopping with online parts and
maintenance information and ordering
capability

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Boeing On Line Data (BOLD)
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Incorporating not only engineering
drawings but manuals, catalogs and other
technical information that used to be
available only in paper or in microfiche
format
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Portable Maintenance Aid (PMA)

Solves maintenance problems

Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)

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Benefits to Boeing’s Customers

Increased productivity

spending less time searching for information; frees up
engineers and maintenance technicians to focus on
more productive activities
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Reduced costs

with information available online at the airports’ gates,
through PMA, rather than back in the office, delays at
the gate due to missing information are reduced

Increased revenue opportunity

through BOLD and PMA, a European airline estimates it
will save 1-2 days/year of down time for each aircraft

Should Boeing keep the inventory of parts in
stock, or relay on the manufacturers?
Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)

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Just-In-Time Delivery:
Fed Express InterNetShip

FedEx

Internet and private networks improve
efficiency and customer satisfaction

FedEx PowerShip and FedEx Ship were
the two software rolled out in the mid-
1980s and 1995 respectively
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Now moving to the Internet : InterNetShip

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FedEx InterNetShip
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Extends online capabilities to the Internet
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Customers can request a parcel pickup or find
the nearest drop-off point, print packing labels,
compute fees, request invoice adjustments and
track the status of their deliveries without leaving
the Web site

FedEx COSMOS (own proprietary network)

handles 54 million transactions a day (1998)

Hundreds of thousands of tracking requests per
month come from links from over 5,000 Web
sites to fedex.com
Just-In-Time Delivery:
Fed Express InterNetShip (co nt.)

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Benefits to FedEx
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Avoided Costs

If not for FedEx PowerShip, FedEx would have had to
hire an additional 20,000 employees to answer phone
calls at the call centers and key in air bills
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Lower Operating Costs

Without the system, approximately half of the calls
would have gone to FedEx’s toll-free number resulting
in high telephone and labor expenses

Better Customer Service

Customers still have a choice for how they interact
with the company, whether by e-mail, phone, fax or
other means

Just-In-Time Delivery:
Fed Express InterNetShip (co nt.)

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Business-to-Business Auctions
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Benefits

New sales channel

New venue for disposing excess, obsolete products
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Increase page views; viewers like to watch auctions

Acquire and retain members
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Types

Independent auctions: using 3
rd
party auction site
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Community auctions: many sellers and buyers
simultaneously (Electricity, Flowers)
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Private auctions: large distributor (Ingrain Micro)

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What Auction Intermediary Provides?
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All necessary infrastructure

Company controls all auction information
(software provided)
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All procedures for auctions
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Fast deployment time
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Search engine

Trust mechanism (escrow, insurance)
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Activity report generation
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Billing and collection
Business-to-Business Auctions (cont.)

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EDI - The Infrastructure for B2B

A network for transmitting standard transactions

A paperless TPS environment
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Routine documents; purchase order, billings,

shipping manifests

Documents translated into standard business
language

In use since the 1970s on private VANs. Save
time, reduce errors in data entry, save money,
consistent information flow

Provide strategic advantages