Chapter 12 Q/A for Students

1. Explain the differences among total inter-firm trade, B2B commerce, and B2B
E-commerce. What is the scope of B2B E-Commerce? What are the challenges of B2B E-
Commerce?

Total Inter-Firm Trade:

The term total inter-firm trade refers to the total flow of value among firms.

B2B Commerce:
B2B commerce describes all types of inter-firm trade to exchange value across organizational
boundaries. B2B commerce includes the following business processes so far as they involve
inter-firm trade:

 Customer relationship management

 Demand management
 Order fulfillment
 Manufacturing management
 Procurement
 Product development
 Returns
 Logistics/transportation,
 Inventory management

This definition of B2B commerce does not include transactions that occur within the boundaries
of a single firm—for instance, the transfer of goods and value from one subsidiary to another,
or the use of corporate intranets to manage the firm.

B2B e-commerce:
B2B e-commerce describes specifically that portion of B2B commerce that is enabled by the
Internet.

B2B E-Commerce Scope:

The process of conducting trade among businesses consumes many business resources,
including the time spent by employees processing orders, making and approving purchasing
decisions, searching for products, and arranging for their purchase, shipment, receipt, and
payment. Across the economy, this amounts to trillions of dollars spent annually on
procurement processes

If even just a portion of inter-firm trade were automated, and parts of the entire procurement
process assisted by the Internet, then literally trillions of dollars might be released for more
productive uses, consumer prices potentially would fall, productivity would increase, and the
economic wealth of the nation would expand. This is the promise of B2B e-commerce.
B2B E-Commerce Challenge: The challenge of B2B e-commerce is changing existing patterns
and systems of procurement, and designing and implementing new Internet-based B2B
solutions.

2. List potential benefits of B2B e-commerce.

 Lower administrative costs

 Lower search costs for buyers

 Reduce inventory costs by increasing competition among suppliers (increasing price

transparency) and reducing inventory to the bare minimum

 Lower transaction costs by eliminating paperwork and automating parts of the

procurement process

 Increase production flexibility by ensuring delivery of parts “just in time”

 Improve quality of products by increasing cooperation among buyers and sellers and
reducing quality issues

 Decrease product cycle time by sharing designs and production schedules with suppliers

 Increase opportunities for collaborating with suppliers and distributors

 Create greater price transparency—the ability to see the actual buy and sell prices in a
market

 Increase the visibility and real-time information sharing among all participants in the
supply chain network.

3. What is Procurement and what are the 7 stages of procurement.

Procurement is the process of how a firms purchase goods they need to produce goods for
consumers

• Searching for suppliers for specific products

• Qualifying the sellers and the products they sell
• Negotiating prices, credit terms, escrow requirements, and quality requirements
• Scheduling delivery
• Issuing purchase orders
• Sending invoices
• Shipping the product
 4. Name and define the two distinct types of procurements firms make.

Two distinctions are important for understanding how B2B e-commerce can improve the
procurement process.
First, firms make purchases of two kinds of goods from suppliers: direct goods and indirect
goods.
Direct goods are goods integrally involved in the production process; for instance, when an
automobile manufacturer purchases sheet steel for auto body production.
Indirect goods are all other goods not directly involved in the production process, such as office
supplies and maintenance products. Often these goods are called MRO goods—products for
maintenance, repair, and operations.

Second, firms use two different methods for purchasing goods: contract purchasing and spot
purchasing.
Contract purchasing involves long-term written agreements to purchase specified products,
with agreed-upon terms and quality, for an extended period of time. Generally, firms purchase
direct goods using long-term contracts.
Spot purchasing involves the purchase of goods based on immediate needs in larger
marketplaces that involve many suppliers. Generally, firms use spot purchasing for indirect
goods, although in some cases, firms also use spot purchasing for direct goods.

5. Explain the difference between a horizontal market and a vertical market.

 Vertical markets provide expertise and products targeted to a specific industry. EDI
systems usually serve vertical markets.

 Horizontal markets serve a myriad of different industries. Electronic storefronts are an

example of a horizontal market in that they tend to carry a wide variety of products that
are useful to any number of different industries

6. What is Net Marketplace? Understand the four types of Net marketplaces.

Net marketplace is that they bring hundreds to thousands of suppliers—each with electronic
catalogs and potentially thousands of purchasing firms—into a single Internet based
environment to conduct trade.

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.
https://www.youtube.com/watch?v=rGCP2E6j6dQ

• Exchanges are independently owned online marketplaces that connect hundreds to

thousands of suppliers 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.

7. Define the term supply chain Management System. What Benefits does it provide?

Supply Chain Management System:

Supply chain management systems continuously link the activities of buying, making, and
moving products from suppliers to purchasing firms, as well as integrating the demand side of
the business equation by including the order entry system in the process.

With an SCM system and continuous replenishment, inventory is greatly reduced and
production begins only when an order is received. These systems enable just-in-time and lean-
production methods.

Lean production is an approach to management that focuses on cutting out waste, whilst
ensuring quality. This approach can be applied to all aspects of a business – from design,
through production to distribution.

Just-in-time production minimizes the time, labor, and materials in a manufacturing process by

only producing goods as they are needed.
The desired outcome is a streamlined production system that maintains a minimal amount of
on-site raw materials, minimal wait times in the production process, and small batch sizes.

https://www.youtube.com/watch?v=J4v-HjY3R0Y
8. What is a Private Industrial Network? What are the benefits of joining a B2B private
Industrial Network?

A private industrial network (sometimes referred to as a private trading exchange or PTX) is a

web-enabled network for the coordination of trans-organizational business processes
(sometimes also called collaborative commerce). Private industrial networks are direct
descendants of existing EDI networks, and they are closely tied to existing ERP systems used by
large firms.

 Existing efficient supply chain helps market product at competitive price

 An opportunity to connect with suppliers not only in local market but also international
given that the B2B private industrial network has international operations.
 An opportunity to grow in a collaborative network
 Take advantage of existing EDI, valuable analytics and insight
 Save expense of purchasing and upgrading or optimizing EDI or any software
 No barrier of entry even if a firm is a small or start up

9. What is an EDI?

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business

documents in a standard electronic format between business partners; it is directly connected
to a company’s ERP (Enterprise resource planning) system.

https://www.youtube.com/watch?v=yM8WtsUsFXI

https://www.youtube.com/watch?v=jV7okF2MVxI

10. How Walmart grew its private industrial network and become the largest retail company
with largest SCM and private industrial network in the world?

 In the late 1980s, Walmart developed the beginnings of collaborative commerce using an
EDI-based SCM system that required its large suppliers to use Walmart’s proprietary EDI
network to respond to orders from Walmart purchasing managers.

 In 1991, Walmart expanded the capabilities of its EDI-based network by introducing Retail
Link. This system connected Walmart’s largest suppliers to Walmart’s own inventory
management system, and it required large suppliers to track actual sales by stores and to
replenish supplies as dictated by demand and following rules imposed by Walmart.

 Walmart also introduced financial payment systems that ensure that Walmart does not own
the goods until they arrive and are shelved.
 In 1997, Walmart moved Retail Link to an extranet that allowed suppliers to directly link
over the Internet into Walmart’s inventory management system.

 In 2000, Walmart hired an outside firm to upgrade Retail Link from being a supply chain
management tool toward a more collaborative forecasting, planning, and replenishment
system. Using demand aggregation software provided by Atlas Metaprise Software,
Walmart purchasing agents can now –

 Aggregate (collect) demand from Walmart’s 5,000 separate stores in the United
States into a single RFQ (request for quotation) from suppliers. This gives
Walmart tremendous clout with even the largest suppliers.
 Previously, Walmart’s foreign location buyers relied on a mix of telephones, fax,
and e-mail to communicate their spending forecasts. The Atlas system allows
them to submit forecasts via the Internet.

 Suppliers can now immediately access information on inventories, purchase

orders, invoice status, and sales forecasts, based on 104 weeks of online, real-
time, item-level data.

 The system does not require smaller supplier firms to adopt expensive EDI
software solutions. Instead, they can use standard browsers and PCs loaded with
free software from Walmart. There are now over 20,000 suppliers—small and
large— participating in Walmart’s network.

 In 2002, Walmart switched to an entirely Internet-based private network. Walmart adopted

AS2, a software package from iSoft Corporation, a Dallas-based software company. AS2
implemented EDI-INT (an Internet-based standard version of EDI), and the result was a
radical reduction in communications costs.

 In 2007, Walmart’s rapid growth, especially global operations, forced it to go outside for its
financial services operation systems. Walmart hired SAP, an enterprise software
management firm, to build a global financial management system for Walmart.

 For instance, in 2012 Walmart purchased Quintiq Inc., a supply chain management tool for
improving load assignment and dispatch of trucks for large retailers. By 2013, Walmart’s
B2B supply chain management system had mastered on a global scale the following
capabilities: cross docking, demand planning, forecasting, inventory management, strategic
sourcing, and distribution management.

https://www.youtube.com/watch?v=yZC4neLax5o
https://www.youtube.com/watch?v=85KmrGQZpIY