Chapter 5

B2B E-Commerce:
Selling and Buying in Private E-
Markets

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

1. Describe the B2B field.

2. Describe the major types of B2B models.
3. Discuss the characteristics of the sell-side
marketplace, including auctions.
4. Describe the sell-side intermediary models.
5. Describe the characteristics of the buy-side
marketplace and e-procurement.
6. Explain how reverse auctions work in B2B.

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Learning Objectives

7. Describe B2B aggregation and group

purchasing models.
8. Describe other procurement methods.
9. Explain how B2B administrative tasks can be
automated.
10. Describe infrastructure and standards
requirements for B2B.
11. Describe Web EDI, XML, and Web Services.

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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 e-
marketplaces
 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 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-in-
time 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 Company’s 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 e-
procurement 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 company’s 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 buyer’s 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 spend-
management 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 business’s 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. Can we justify the cost of B2B?
2. Which vendor(s) should we select?
3. Which B2B model(s) should we use?
4. Should we restructure our procurement
system?
5. What are the ethical issues in B2B?
6. Will there be massive disintermediation?
7. How can trust and loyalty be cultivated in
B2B?
8. How is mobile B2B done?

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