Chapter 5

B2B E-Commerce: Selling and Buying in Private EMarkets

2008 Pearson Prentice Hall, Electronic Commerce 2008, Efraim Turban, et al.

Concepts, Characteristics, and Models of B2B EC

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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Concepts, Characteristics, and Models of B2B EC

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Concepts, Characteristics, and Models of B2B EC

The Basic Types of B2B Transactions and Activities
Sell-side Buy-side Exchanges Supply chain improvements and collaborative commerce

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Concepts, Characteristics, and Models of B2B EC

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Concepts, Characteristics, and Models of B2B EC

The Basic Types of B2B E-Marketplaces and Services
One-to-many and many-to-one: private emarketplaces
company-centric EC E-commerce that focuses on a single companys buying needs (many-to-one, or buy-side) or selling needs (one-tomany, or sell-side) 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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Concepts, Characteristics, and Models of B2B EC

Intermediaries Many-to-many: exchanges
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 public e-marketplaces Third-party exchanges that are open to all interested parties (sellers and buyers)

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Concepts, Characteristics, and Models of B2B EC

Supply chain activities and collaborative commerce B2B2C

B2B Characteristics
Parties to the transaction: sellers, buyers, and intermediaries
online intermediary An online third party that brokers a transaction online between a buyer and a seller; may be virtual or click-and-mortar

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Concepts, Characteristics, and Models of B2B EC

Types of transactions
spot buying The purchase of goods and services as they are needed, usually at prevailing market prices strategic (systematic) sourcing Purchases involving long-term contracts that usually are based on private negotiations between sellers and buyers

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Concepts, Characteristics, and Models of B2B EC

Types of materials traded
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) MRO (maintenance, repair, and operation) Indirect materials used in activities that support production
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Concepts, Characteristics, and Models of B2B EC

Direction of trade
vertical marketplaces Markets that deal with one industry or industry segment (e.g., steel, chemicals) horizontal marketplaces Markets that concentrate on a service, materials, or a product that is used in all types of industries (e.g., office supplies, PCs)

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Concepts, Characteristics, and Models of B2B EC

SUPPLY CHAIN RELATIONSHIPS IN B2B
The supply chain process consists of a number of interrelated subprocesses and roles
Acquisition of materials from suppliers Processing of a product or service Packaging it and moving it to distributors and retailers The eventual purchase of a product by the end consumer

A B2B private e-marketplace provides a company with high supply chain power and high capabilities for online interactions

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Concepts, Characteristics, and Models of B2B EC

Virtual Service Industries in B2B
Travel and hospitality services Real estate Financial services Online stock trading Online financing Other online services

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Concepts, Characteristics, and Models of B2B EC

The Benefits of B2B
Creates new sales (purchase) opportunities Eliminates paper and reduces administrative costs Expedites processing and reduces cycle time Lowers search costs and time for buyers to find products and vendors Increases productivity of employees dealing with buying and/or selling Reduces errors and improves quality of services Makes product configuration easier Reduces marketing and sales costs (for sellers)
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Concepts, Characteristics, and Models of B2B EC

The Benefits of B2B
Reduces inventory levels and costs Enables customized online catalogs with different prices for different customers Increases production flexibility, permitting just-intime delivery Reduces procurement costs (for buyers) Facilitates customization via configuration (e.g., at Cisco) Provides for efficient customer service Increases opportunities for collaboration
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Concepts, Characteristics, and Models of B2B EC

The Limitations of B2B
Channel conflict Operation of public exchanges

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One-to-Many: Sell-Side E-Marketplaces

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
B2B Sellers Customer Service

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One-to-Many: Sell-Side E-Marketplaces

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One-to-Many: Sell-Side E-Marketplaces

Direct Sales from Catalogs
Configuration and customization Benefits and limitations of direct sales from catalogs
The benefits of direct sales are similar to that of B2C Limitations
How to find a buyer Channel conflicts with their existing distribution systems The cost to the customers can be high

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One-to-Many: Sell-Side E-Marketplaces

Direct Sales: The Example of Cisco Systems
Customer service Online ordering by customers Tracking order status
Benefits
Reduced operating costs for order taking Improved quality Reduced technical support staff cost Reduced software distribution costs Faster service
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Selling via Intermediaries and Distributors

Manufacturers frequently use intermediaries to distribute their products to a large number of buyers, known as distributors The intermediaries usually buy products from many vendors and aggregate them into one catalog from which they sell Now, many of these distributors also are selling online
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Selling via Auctions

Using Auctions on the Sell Side
Revenue generation Cost savings Increased stickiness Member acquisition and retention

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Selling via Auctions

Auctioning from the Companys Own Site
Why should a company pay a commission to an intermediary if the intermediary cannot provide the company with added value If a company decides to auction from its own site, it will have to pay for infrastructure and operate and maintain the auction site

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Selling via Auctions

Using Intermediaries in Auctions
Benefits
No additional resources are required No hiring costs or opportunity costs associated with the redeployment of corporate resources Offer fast time-to-market Billing and collection efforts, are handled by the intermediary rather than the company

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

buy-side e-marketplace A corporate-based acquisition site that uses reverse auctions, negotiations, group purchasing, or any other eprocurement method

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

Six Main Types of E-Procurement

e-sourcing e-tendering e-reverse auctioning e-informing Web-based ERP (electronic resource planning) e-MRO (maintenance, repair and operating)

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

Inefficiencies in Traditional Procurement Management
procurement management The planning, organizing, and 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-prenegotiated higher prices

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

e-procurement The electronic acquisition of goods and services for organizations

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

The Goals and Benefits of E-Procurement
Increasing the productivity of purchasing agents Lowering purchase prices Improving information flow and management Minimizing the purchases made from non-contract vendors Improving the payment process and savings due to expedited payments Establishing efficient, collaborative supplier relations Ensuring delivery on time, every time Slashing order-fulfillment and processing times by leveraging automation

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

The Goals and Benefits of E-Procurement Reducing the skill requirements and training needs of purchasing agents Reducing the number of suppliers Streamlining the purchasing process, Streamlining invoice reconciliation and dispute resolution Reducing the administrative processing cost per order Finding new suppliers and vendors that can provide goods and services faster and/or cheaper (improved sourcing) Integrating budgetary controls into the procurement process Minimizing human errors in the buying or shipping processes Monitoring and regulating buying behavior

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

Implementing E-Procurement
Fitting e-procurement into the companys EC strategy Reviewing and changing the procurement process itself Providing interfaces between e-procurement and integrated enterprisewide information systems, such as ERP or supply chain management Coordinating the buyers information system with that of the sellers Consolidating the number of regular suppliers and integrating with their information systems and, if possible, with their business processes

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One-from-Many: Buy-Side E-Marketplaces and E-Procurement

e-sourcing The process and tools that electronically enable any activity in the sourcing process, such as quotation/tender submission and response, e-auctions, online negotiations, and spending analyses

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Buy-Side E-Marketplaces: Reverse Auctions

request for quote (RFQ) The invitation to participate in a tendering (bidding) system

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Buy-Side E-Marketplaces: Reverse Auctions

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Other E-Procurement Methods

internal procurement marketplace The aggregated catalogs of all approved suppliers combined into a single internal electronic catalog desktop purchasing Direct purchasing from internal marketplaces without the approval of supervisors and without the intervention of a procurement department
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Other E-Procurement Methods

group purchasing The aggregation of orders from several buyers into volume purchases so that better prices can be negotiated
Internal aggregation External aggregation

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Other E-Procurement Methods

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Other E-Procurement Methods

Buying from E-Distributors Purchasing Direct Goods Electronic Bartering
bartering exchange An intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants

Buying in Exchanges and Industrial Malls

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Automating B2B Tasks

Contract Management
Contract-management software can:
Reduce contract negotiation time and efforts Facilitate inter- and intracompany contract analysis and development Provide for proactive contract compliance management Enable enterprisewide standardization of contracts Improve understanding of contract-related risks Provide a more efficient approval process
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Automating B2B Tasks

Spend Management
Tools and features may be found in spendmanagement software include:
A data warehouse repository designed to manage data from multiple data sources Data management of contracts, supplier catalogs, and product content Data management of pricing Detailed standard and ad-hoc purchasing activity analysis and report tools Updates, notifications, and alerts regarding purchasing

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Automating B2B Tasks

Sourcing Management and Negotiation
Tools and features may be found in sourcing management software include:
Bid comparison, including exports of detailed bid data User management functions that eliminate data redundancy, simplify data management, and reduce risk to data integrity Weighted scoring of parameters to calculate the total value offered by suppliers Total merchandise purchased cost model with bids winners selection and ranking Reverse auctions and sealed bids, with a full set of features such as proxy bids and bid-time extensions Negotiation support tools

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Infrastructure, Integration, and Software Agents In B2B EC

Infrastructure for B2B
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 Internet-based (Web) EDI EDI that runs on the Internet and is widely accessible to most companies, including SMEs
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Infrastructure, Integration, and Software Agents In B2B EC

Integration
Integration with the existing internal infrastructure and applications Integration with business partners

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Infrastructure, Integration, and Software Agents In B2B EC

The Role of Standards, Especially XML, in B2B Integration

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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Infrastructure, Integration, and Software Agents In B2B EC

XBRL A version of XML for capturing financial information throughout a businesss information processes. XBRL makes it possible to format reports that need to be distributed to shareholders, SOX regulators, banks, and other parties. The goal of XBRL is to make the analysis and exchange of corporate information more reliable (trustworthy) and easier to facilitate Web Services An architecture enabling assembly of distributed applications from software services and tying them together

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Managerial Issues
1. 2. 3. 4. 5. 6. 7. 8. Can we justify the cost of B2B? Which vendor(s) should we select? Which B2B model(s) should we use? Should we restructure our procurement system? What are the ethical issues in B2B? Will there be massive disintermediation? How can trust and loyalty be cultivated in B2B? How is mobile B2B done?
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