Chapter 07

B2B E-
Commerce
M. FATHIMA RASHIDA
SENIOR LECTURER IN MIT
DMIT, FMC
Learning Objectives
oDescribe the B2B field
oDescribe the major types of B2B models
oDiscuss the models and characteristics of the sell-side marketplace, including
auctions
oDescribe sell-side intermediaries
oDescribe the characteristics of the buy-side marketplace and e-procurement
oExplain how reverse auctions work in B2B
oDescribe B2B aggregation and group purchasing models
oDefine exchanges and describe their major types
oDescribe how B2B can benefit from social networking and Web 2.0
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 Concepts, Characteristics, and
Models of B2B E-Commerce

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Basic B2B Concepts and Process
oBusiness-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
oThe Basic Types Of B2B Transactions and Activities
 Sell-side
 Buy-side
 Exchanges
 Supply chain improvements and collaborative commerce
 Collaborative commerce

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 Types of B2B E-Commerce

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The Basic Types Of B2B E-marketplaces And Services
oMany-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 open to all interested parties (sellers and buyers)
oOne-to-Many and Many-to-One: Private E-Marketplaces
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) company-centric EC

oSupply Chain Improvers and Collaborative Commerce

Business deal with other business for purpose beyond just selling or buying. Eg: Collaborative
Commerce
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B2B Components
oParties to the Transaction: Sellers, Buyers, and Intermediaries
oTypes 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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B2B Components…
oTypes 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) called as nonproduction materials

oThe Direction of the Trades

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

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Service Industries Online In B2B
oIn addition to trading products between businesses, services also can be
provided electronically in B2B;
 Travel and hospitality services
 Real estate
 Financial services
 Online financing
 Other online services

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Partner and Supplier Relationship Management
oSuccessful e-businesses need to coordinate and collaborate with business
partners along the relevant supply chains
oCorporate customers may require more services than individual customers
need
oLarge numbers of vendors are available for designing and building
appropriate B2B relationship solutions
oThe strategy of providing such comprehensive, quality e- services for
business partners is sometimes called partner relationship management
(PRM)

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 Benefits of B2B E- Commerce
BENEFITS OF B2B FOR BUYERS BENEFITS OF B2B FOR SELLERS
oLowers search costs and time for oCreates new sales opportunities
buyers to find products and vendors o
Reduces marketing and sales costs
oMakes products configuration easier
oIncreases production flexibility,
oReduces procurement costs permitting just-in-time delivery
oProvides for efficient customer oReaches a more geographically
service dispersed customer base
oReduces purchasing costs by cutting
down on use of intermediaries
oHelps equalize small enterprises

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Benefits of B2B E- Commerce..
oThe Benefits Of B2B For Both
 Eliminates paper and reduces administrative costs
 Expedites processing and reduces cycle time
 Increases productivity of employees dealing with buying and or selling
 Reduces errors and improves quality of services
 Reduces inventory levels and costs
 Enables customized online catlogs with different prices for different customers
 Facilitates customization via self configuration
 Increases opportunities for collaboration
 Web-based EC is more affordable than traditional EDI
 Provides a better means of communication with other media
 Provides 24/7 coverage of the shop front

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 One-to-many: Sell-side E-
marketplaces

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Sell-side Models
oA Web-based marketplace in which one company sells to many business
buyers from e-catalogs or auctions, frequently over an extranet
oThe one-to-many model has three major marketing methods:
 selling from electronic catalogs with fixed prices
 selling via forward auctions ; and
 one-to-one selling, usually under a negotiated long-term contract

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Sales From Catalogs: Webstore
oCompanies can use the Internet to sell directly from their online catalog; A
company might offer one catalog for all customers or a customized catalog
for each large customer
oIn selling online to business buyers, manufacturers might encounter a similar
problem to that of B2C, namely conflict with the regular distribution
channels, including corporate dealers (channel conflict)
oTo avoid conflicts, some companies advertise online, but sell only in physical
stores

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Selling via Distributors and Other Intermediaries
oManufacturers can sell directly to other businesses, and they do so if the customers
are large buyers
oHowever, manufacturers frequently use intermediaries to distribute their products
to a large number of smaller buyers
oThe intermediaries buy products from many other manufacturers and aggregate
those products into one catalogue from which they sell to customers or to retailers
oMany e-distributors sell in horizontal markets, meaning that they sell to businesses
in a variety of industries; However, some distributors sell to businesses that
specialize in one industry (vertical market)
oMost intermediaries sell at fixed prices; however, some offer quantity discounts,
negotiated prices, or conduct auctions
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 Selling Via E-auctions

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The Benefits of Auction on the Sell Side
oMany companies use forward auctions to liquidate their surplus products or
capital assets
oIn such a situation, items are usually displayed on an auction site (private
or public) for quick clearance
oForward auctions offer the following benefits to B2B sellers:
Revenue generation
Cost savings
Increased “stickiness”
Member acquisition and retention

oA company can conduct its forward auctions from its own website or it
can sell from an intermediary auction site

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 One-from-many: Buy-side E-
marketplaces And E-
procurement

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Inefficiencies in Traditional Procurement Management
oThe term procurement refers to the purchase of goods and services by
organizations
oProcurement is usually done by purchasing agents , also known as corporate
buyers
oBuy-side E-marketplace: A corporate-based acquisition site that uses
reverse auctions, negotiations, group purchasing, or any other e-procurement
method
oProcurement management refers to the process of planning, organizing,
and coordinating of all the activities pertaining to the purchasing of the
goods and services needed by an organization
oInefficiencies are:
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E-Procurement Concepts
oE-procurement (electronic procurement) is the online purchase of
supplies, materials, energy, work, and services
oIt can be done via the Internet or via a private network such as electronic
data exchange (EDI)
oMajor methods of e-procurement are:
 Buy at own website
 buy at sellers’ store
 buy at exchanges
 buy at others’ e-market sites.

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E-Procurement Concepts…
o7 main types of E-procurement are:
 E-sourcing
 E-tendering
 E-reverse auctioning
 E-informing
 Web-based ERP
 E-market sites
 E-MRO

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 E-Procurement Methods

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The Benefits and Limitation of E- Procurement
oBenefits:
 Increasing the productivity of purchasing agents
 Lowering purchase prices through product standardization, reverse auctions, volume
discounts, and consolidation of purchase
 Improving information flow and management
 Minimizing the purchases made from noncontract vendors
 Improving the payment process and savings due to expedited payments
 Establishing efficient, collaborative suppliers relations
 Ensuring delivery on time, every time
 Slashing order-fulfillment and processing times by leveraging automation
 Reducing the number of suppliers
 Streamlining the purchasing process, making it simple and fast
 Streamlining invoice reconciliation and dispute resolution
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The Benefits and Limitation of E- Procurement…
Reducing the administrative processing cost per order by as much as 90%
Finding new suppliers and vendors that can provide goods and services faster and/or
cheaper
Integrating budgetary controls into the procurement process
Minimizing human errors in the buying or shipping processes
Monitoring and regulating buying behaviours

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The Benefits and Limitation of E- Procurement…
oLimitations:
 The total cost (TCO) may be too high
 It may be subject to hacker attacks
 It may be difficult to get suppliers to cooperate electronically
 The system may be too complex (e.g., when it uses a traditional EDI)
 It may be difficult to have internal and external integration (sometimes it involves
different standards)
 The technology may change frequently

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 Reverse Auctions
At Buy-side E-marketplaces
(E-tendering)

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Conducting Reverse Auctions
oA major method of e-procurement is using reverse auctions
oA reverse auction is a process in which many sellers (suppliers) compete to fulfil orders
requested by one buyer; Reverse auction is a tendering system in which suppliers are invited
to bid on the fulfilment of an order and the lowest bid wins
oIn B2B, a buyer may open an electronic market on its own server and invite potential
suppliers to bid on the items the buyer needs
oRequest For Quote (RFQ): The “invitation” to participate in a tendering (bidding) system
oConducting Reverse Auctions
 Online directories that list open RFQs
 Use of software agents  auctionsniper.com, auctionflex.com
 E-Tendering by Governments

oGroup Reverse Auctions

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 The Reverse Auction Process

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 Other E-procurement Methods

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Other Purchasing Methods
oDesktop Purchasing

Direct purchasing from internal marketplaces without the approval of supervisors and
without the intervention of a procurement department
oGroup Purchasing

The aggregation of orders from several buyers into volume purchases so that better
prices can be negotiated
 Internal Aggregation of Purchasing Orders
 External Aggregation for Group Purchasing

oBartering 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
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 The Group Purchasing Process

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 B2b Exchanges (E-
marketplaces): Definitions And
Concepts

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B2b Exchange
oThe term B2B exchange , or simply exchange , implies the existence of
many potential buyers and many potential sellers in B2B e-marketplaces
oDespite their variety, all exchanges share one major characteristic: Exchanges
are electronic trading- community meeting places for many sellers and many
buyers, and possibly for other business partners
oExchanges can be horizontal, serving many industries, or vertical, serving
one or a few connected industries

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The Community of an Exchange: Flow and Access to Information

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B2b Exchange…
oFunctions Of Exchanges
1. Matching buyers and sellers
o Presentation of product offering (e.g., the company’s catalogs)
o Aggregating and posting different products for sale – to meet buyers’ need
o Providing price comparisons
o Organizing bids (bartering) and (auctions)
o Providing sellers’ profiles and product Information Matching suppliers’ offerings with buyers’
requests
o Supporting negotiations between buyers and sellers
o Providing directories of sellers
o Maintaining security, privacy, and anonymity
2. Facilitating transactions
3. Maintaining exchange policies and infrastructure

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B2b Exchange…
oFunctions Of Exchanges
1. Matching buyers and sellers
2. Facilitating transactions
o Allowing for efficient trading between participants
o Providing for B2B auctions
o Providing the trading platform with mechanisms such as arranging payment, insurance, order fulfilment and security
o Providing escrow services
o Arranging for group (volume) purchasing and other discounts
o Defining terms and other transaction values, including negotiation
o Inputting searchable information, including industry news
o “Granting exchange access to users and identifying company users eligible to use exchange” Collecting transaction fees
and providing the necessary software and its integration with buyers and/or sellers systems, including EDI, XML, etc.
o Providing analysis and statistics of products’ transactions
o Registering and qualifying buyers and suppliers
3. Maintaining exchange policies and infrastructure

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B2b Exchange…
oFunctions Of Exchanges
1. Matching buyers and sellers
2. Facilitating transactions
3. Maintaining exchange policies and infrastructure
o “Ascertaining compliance with commercial code, contract law, export and import laws, [and]
intellectual property law
o Maintaining technological infrastructure to support volume and complexity of transactions
o Providing interface capability to standard systems of buyers and suppliers
o Obtaining appropriate site advertisers and collecting advertising and other fees”
4. Services provided by an exchange

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B2b Exchange…
oFunctions Of Exchanges
1. Matching buyers and sellers
2. Facilitating transactions
3. Maintaining exchange policies and infrastructure
4. Services provided by an exchange
o Sourcing – RFQ bid coordination (product configuration, negotiation)
o Security, anonymity
o Software: groupware, workflow
o Integration with members’ back-office systems
o Support services (financing, order tracking)

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Dynamic Pricing In B2b Exchanges
oThe market makers in both vertical and horizontal exchanges match supply
and demand in their exchanges, and this matching determines prices, which
are usually dynamic and are based on changes in supply and demand
oDynamic Pricing: A rapid movement of prices over time and possibly
across customers, as a result of supply and demand matching

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 Potential Gains In B2B Exchange
For buyers For sellers
One-stop shopping, huge New sales channel
Search and comparison shopping No physical store is needed
Volume discounts Reduced ordering errors
24/7 ordering from any location Sell 24/7
Make one order from several suppliers Community participation
Huge, detailed information Reach new customers at little extra cost
Access to new suppliers Promote the business via the exchange
Status review and easy reordering An outlet for surplus inventory
Community participation Can go global more easily
Fast delivery Efficient inventory management
Less maverick buying Better partner relationship management
Better partnership management

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 Potential Risks In B2B Exchange
For buyers For sellers
Unknown vendors; may not be reliable Loss of direct CRM and PRM
Loss of customer service quality (inability to More price wars
compare all services)
Competition for value-added
services
Must pay transaction fees (including on
seller’s existing customers)
Possible loss of customers to
competitors

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 B2B in the Web 2.0 Environment
and Social Networking

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The Opportunities
oDiscover new business partners
oImprove recruitment
oEnhance ability to learn about new technologies, competitors, etc.
oFind sales prospects
oImprove participation in industry association activities

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Social Network use to Corporations
oCorporations Are Using Social Networks To:
 Create brand awareness
 Advertise product and services and promote new ones
 Create buzz about upcoming product releases
 Drive traffic to their online web properties in hopes of enticing users to engage with their
sites, products, or solutions
 create social communities to encourage discussion among business partners about their
products and /or act as a feedback mechanism about their products/ services
 Use social networks, such as Facebook and LinkedIn, to recruit new talent. Some HR
departments are using social networks to obtain more insight into potential new hires

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Strategy for B2B Networking
oStrategy For B2B Social Networking
 Participate
 Monitor
 Use existing applications
 The Future of Social Networking

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 End of the Chapter

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