816 CHAPTER 12 B2B E-commerce: Supply Chain Management and Collaborative Commerce

give managers a near real-time view of their entire supply and logistics systems. In
the past, and still in many firms today, this kind of supply chain information comes
in many different forms, from faxes, to e-mails, spreadsheets, and EDI messages. The
Control Tower eliminates these difficult-to-interpret messages, and greatly enhances
supply chain visibility.

Case Study Questions

1. If you were a small chemical company, what concerns would you have about
joining Elemica?
2. Elemica provides a community for participants where they can transact, coordi-
nate, and cooperate to produce products for less. Yet these firms also compete
with one another when they sell chemicals to end-user firms in the automobile,
airline, and manufacturing industries. How is this possible?
3. How does the purchase of Elemica by Thoma Bravo, a private equity firm, change
how Elemica fits into the B2B framework illustrated in Figure 12.9?

12.7 REVIEW

KEY CONCEPTS

Discuss the evolution and growth of B2B e-commerce, as well as its potential benefits and challenges.
• Before the Internet, business-to-business transactions were referred to simply as inter-firm trade or the
procurement process. Today, we use the term B2B commerce to describe all types of inter-firm trade to
exchange value across organizational boundaries, involving both the buying of inputs and the marketing,
selling, and distribution of products and services, and the term B2B e-commerce to describe specifically
that portion of B2B commerce that is enabled by the Internet and mobile apps.
• In order to understand the evolution of B2B e-commerce, you must understand several key stages:
• Automated order entry systems, developed in the 1970s, involved the use of telephone modems to
send digital orders.
• EDI or electronic data interchange, developed in the late 1970s, is a communications standard for shar-
ing various procurement documents including invoices, purchase orders, shipping bills, product
stocking numbers (SKUs), and settlement information for an industry.
• B2B e-commerce websites emerged in the 1990s along with the commercialization of the Internet.
They are online catalogs containing the products that are made available to the general public by a
single vendor.
• Net marketplaces emerged in the late 1990s as a natural extension and scaling-up of the electronic
storefront. Net marketplaces involve the marketing, selling, and distribution side of B2B e-com-
merce. The essential characteristic of all Net marketplaces is that they bring hundreds of suppliers,
each with its own online catalog, together with potentially thousands of purchasing firms to form a
single Internet-based marketplace.
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• Private industrial networks also emerged in the late 1990s with the commercialization of the Internet
as a natural extension of EDI systems and the existing close relationships that developed between
large industrial firms and their suppliers.
• Potential benefits of B2B e-commerce include lower administrative costs; lower search costs for buyers;
reduced inventory costs; lower transaction costs; improved quality of products; decreased product cycle
time; increased opportunities for collaborating with suppliers and distributors; greater price transparency;
and increased visibility and real-time information sharing among all participants in the supply chain
network.
• Potential risks and challenges include lack of real-time data, environmental impacts, natural disasters,
labor concerns, and the impacts of economic, financial, and political instability.

Understand how procurement and supply chains relate to B2B e-commerce.

• The procurement process refers to the way business firms purchase the goods they need in order to pro-
duce the goods they will ultimately sell to consumers. Firms purchase goods from a set of suppliers who
in turn purchase their inputs from a set of suppliers. These firms are linked in a series of connected
transactions. The supply chain is the series of transactions that links sets of firms that do business with
each other. It includes not only the firms themselves but also the relationships between them and the
processes that connect them.
• There are two different types of procurements (purchases of direct goods and purchases of indirect
goods) and two different methods of purchasing goods (contract purchases and spot purchases).
• The term multi-tier supply chain is used to describe the complex series of transactions that exists between
a single firm with multiple primary suppliers, the secondary suppliers who do business with those pri-
mary suppliers, and the tertiary suppliers who do business with the secondary suppliers.

Identify major trends in supply chain management and collaborative commerce.

• Supply chain management (SCM) refers to a wide variety of activities that firms and industries use to coor-
dinate the key players in their procurement process.
• Just-in-time production is a method of inventory cost management that seeks to eliminate excess inventory
to a bare minimum.
• Lean production is a set of production methods and tools that focuses on the elimination of waste through-
out the customer value chain.
• Supply chain simplification involves reducing the size of the supply chain and working more closely with a
smaller group of strategic supplier firms to reduce both product costs and administrative costs, while
improving quality
• Adaptive supply chains allow companies to react to disruptions in the supply chain in a particular region
by moving production to a different region.
• Accountable supply chains are those where the labor conditions in low-wage, underdeveloped producer
countries are visible and morally acceptable to ultimate consumers in more developed industrial societ-
ies.
• Sustainable supply chains involve using the most efficient environment-regarding means of production,
distribution, and logistics.
• EDI remains very important in B2B e-commerce.
• Mobile B2B has become increasingly important in all aspects of B2B e-commerce, through all steps of the
procurement process and throughout the supply chain.
• Cloud-based B2B systems shift much of the expense of B2B systems from the firm to a B2B network pro-
vider, sometimes called a data hub or B2B platform.
818 CHAPTER 12 B2B E-commerce: Supply Chain Management and Collaborative Commerce

• Contemporary supply chain management (SCM) systems are based on supply chain simplification, just in
time and lean production, focusing on strategic partners in the production process, enterprise systems,
and continuous inventory replenishment.
• Collaborative commerce involves the use of digital technologies to permit firms to collaboratively design,
develop, build, market, and manage products through their life cycles, and is a direct extension of supply
chain management systems, as well as supply chain simplification. Collaborative commerce today
involves cloud servers, social business tools, and mobile devices.
• Social networks are providing intimate connections among customers, suppliers, and logistics partners.
• Despite the size of the B2B e-commerce, B2B marketing still accounts for onlya relatively small slice of
the total amount spent on digital marketing and advertising, in part due to the slow pace of technological
change in supply chain and procurement management and in part due to the very different nature of B2B
e-commerce compared to B2C e-commerce. For long-term sourcing, Interpersonal relationships, network-
ing, brand, and informative content marketing using white papers, videos, podcasts, webinars, blogs,
e-books, conferences, and professional associations are the primary and most effective marketing tools.
However, in spot purchasing markets, B2B marketing uses many of the same marketing tactics and tools
found in B2C marketing: display ads, search engine marketing, websites, social network channels, videos,
and mobile ads.

Understand the different characteristics and types of Net marketplaces.

• Net marketplaces are sell-side digital environments where sellers and buyers are brought together.
• Characteristics of Net marketplaces include their bias (seller-side vs. buy-side vs. neutral), ownership
(industry vs. third party), pricing mechanism (fixed priced catalogs, auctions, and RFPs/RFQs), scope/
focus (horizontal vs. vertical), value creation (customers/suppliers), and access to markets (public vs.
private).
• There are four main types of “pure” Net marketplaces:
• E-distributors are independently owned intermediaries that offer industrial customers a single source
from which to make spot purchases of indirect or MRO goods. E-distributors operate in a horizontal
market that serves many different industries with products from many different suppliers.
• E-procurement Net marketplaces are independently owned intermediaries connecting hundreds of
online suppliers offering millions of MRO goods to business firms who pay a fee to join the market.
E-procurement Net marketplaces operate in a horizontal market in which long-term contractual
purchasing agreements are used to buy indirect goods.
• Exchanges are independently owned online marketplaces that connect hundreds to thousands of sup-
pliers and buyers in a dynamic real-time environment. They are typically vertical markets in which
spot purchases can be made for direct inputs (both goods and services). Exchanges make money by
charging a commission on each transaction.
• Industry consortia are industry-owned vertical markets where long-term contractual purchases of
direct inputs can be made from a limited set of invited participants. Consortia serve to reduce supply
chain inefficiencies by unifying the supply chain for an industry through a common network and
computing platform.

Understand the objectives of private industrial networks, their role in supporting collaborative commerce, and the
barriers to their implementation.
• Objectives of private industrial networks include developing efficient purchasing and selling business
processes industry-wide; developing industry-wide resource planning to supplement enterprise-wide
resource planning; increasing supply chain visibility; achieving closer buyer-supplier relationships; oper-
ating on a global scale; and reducing industry risk by preventing imbalances of supply and demand.
• Private industrial networks are transforming the supply chain by focusing on continuous business pro-
cess coordination between companies. This coordination includes much more than just transaction sup-
 Review 819

port and supply chain management. Product design, demand forecasting, asset management, and sales
and marketing plans can all be coordinated among network members. Some of the forms of collaboration
used by private industrial networks include the following:
• CPFR or industry-wide collaborative resource planning, forecasting, and replenishment involves working
with network members to forecast demand, develop production plans, and coordinate shipping,
warehousing, and stocking activities.
• Supply chain and distribution chain visibility refers to the fact that, in the past, it was impossible to
know where excess capacity existed in a supply or distribution chain. Eliminating excess inventories
by halting the production of overstocked goods can raise the profit margins for all network members
because products will no longer need to be discounted in order to move them off the shelves.
• Marketing and product design collaboration can be used to involve a firm’s suppliers in product design
and marketing activities as well as in the related activities of their supply and distribution chain
partners. This can ensure that the parts used to build a product live up to the claims of the market-
ers. Collaborative commerce applications used in a private industrial network can also make pos-
sible closed-loop marketing in which customer feedback will directly impact product design.

QUESTIONS

1. Explain the differences between total B2B commerce and B2B e-commerce.
2. What are the key attributes of a B2B e-commerce website? What early technology are they descended
from?
3. List at least five potential benefits of B2B e-commerce.
4. Name and define the two distinct types of procurements firms make. Explain the difference between the
two.
5. Name and define the two methods of purchasing goods.
6. Define the term supply chain and explain what SCM systems attempt to do. What does supply chain
simplification entail?
7. Explain the difference between a horizontal market and a vertical market.
8. How do the value chain management services provided by e-procurement companies benefit buyers?
What services do they provide to suppliers?
9. What are the three dimensions that characterize an e-procurement market based on its business func-
tionality? Name two other market characteristics of an e-procurement Net marketplace.
10. Identify and briefly explain the anticompetitive possibilities inherent in Net marketplaces.
11. List three of the objectives of a private industrial network.
12. What is the main reason why many of the independent exchanges developed in the early days of
e-commerce failed?
13. Explain the difference between an industry consortium and a private industrial network.
14. What is CPFR, and what benefits could it achieve for the members of a private industrial network?
15. What are the barriers to the complete implementation of private industrial networks?
16. What is EDI and why is it important?
17. Describe six major trends in supply chain management and collaboration.
18. Describe the challenges inherent to B2B e-commerce.
19. What is a multi-tier supply chain and why does it pose a challenge for B2B e-commerce?
20. What is a cloud-based B2B platform and what advantages does it offer?
21. Describe the differences and similarities between B2C and B2B marketing.