Chapter 6 : Selling to Businesses Online

Dr. Samim Al Azad (SAA2)

Assistant Professor, SB&E, NSU
 Chapter Opening Case

Alibaba: China’s E-commerce King

§ China’s undisputed B2C and B2B ecommerce king.

§ Founded in 1999 by Jack Ma, began as a B2B exchange (C2C, B2C)
§ Used an “aggregation of supply” model
§ Three main B2B divisions
– English-language site, Chinese site, AliExpress
§ Focused on global expansion
– Partnered with local companies

§ Site design emphasizes its robust search function, ease of use, and
consumer- friendliness.

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 Learning Objectives

In this chapter, you will learn about:

§ Electronic Data Interchange (EDI) and how it works

§ Types of EDI Networks
§ EDI payments
§ Which companies should use EDI?
§ Supply chain management and how businesses are using internet
technologies to improve it
§ B2B electronic commerce models
 Electronic Data Interchange (EDI)

§ EDI is the inter organizational exchange of documents in

standardized electronic form directly between participating
computers.

§ Goals of EDI
I. Easy and inexpensive communication of structured information
II. Accuracy and business efficiency
– fewer error
– reduce time in handling error

III. Faster handling of information (improving speed)

 EDI Standards

§ Full realization of EDI economies and efficiencies require

standards for all companies in all industries.
1. American National Standards Institute (ANSI)
q Accredited Standards Committee X12 (ASC X12) for
developing and maintaining EDI standards
§ Developed several hundreds of transaction sets: names of the
formats for specific business data interchanges

2. UN standard (UN/EDIFACT)
q EDI for Administration, Commerce, and Transport (EDIFACT)
FIGURE Commonly used ASC X12 transaction sets
FIGURE Commonly used UN/EDIFACT transaction sets
Paper-based purchasing process

FIGURE Information flows in a paper-based purchasing process (18 steps)

 How EDI Works?

FIGURE Information flows in an EDI purchasing process (8 steps)

 How EDI Works?

§ EDI purchasing process shows 2 major changes-

– Mail service replaced with EDI network data communications

– Paper flows within buyer’s and vendor’s organizations replaced

with translator computers
§ Running EDI translation software
 Types of EDI Networks

§ EDI network key elements: 3 key elements

– EDI network, two EDI translator computers

§ Direct connection EDI

– Each businesses operate its own on-site EDI translator
computers
§ These EDI translator computers are then connected directly to each
other using leased telephone lines

– Few companies use direct connection EDI

§ Dedicated leased lines: expensive
§ Modems and dial-up telephone lines: slow, unreliable
FIGURE Direct connection EDI
 Value-Added Networks/ VAN
(Indirect connection EDI)

§ Value-added network (VAN)

– Provides communication equipment, software, skills needed to
§ Receives, stores, forwards electronic messages containing EDI
transaction sets
– A company must install EDI translator software that is
compatible with the VAN

§ Companies providing VAN services

– GXS, Inovis, Easylink Services, Kleinschmidt, Promethean
Software Services, SPS Commerce, and Sterling Commerce

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FIGURE Indirect connection EDI through a VAN
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 Class Discussion

§ Explain how the challenges facing smaller companies that

wanted to participate in electronic data interchange (EDI)
were changed by widespread use of the Internet.
 Value-Added Networks (cont’d.)

§ Advantages
– Support one communications protocol
– VAN records message activity in audit log
§ Becomes independent transactions record

– VAN provides translation between different transaction sets

(ASC X12 to UN/EDIFACT)
– VAN performs automatic compliance checking
 Value-Added Networks (cont’d.)

§ Disadvantages
– Cost (fees)

– Cumbersome, expensive (if using different VANs)

– Inter-VAN transfers do not always provide a clear audit trail

§ May affect dispute resolution

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 Class Discussion

§ Square pharmaceutical ltd, one of the leading pharmaceutical

companies in Bangladesh, has recently planed to implement EDI
network for exchanging transactional data with its business
partners electronically and processing the payment virtually.
However, the company has no idea what kind of EDI network is
better suited for this purpose.
Ø As a part of company’s management team, what kind of EDI network would you
suggest for Square? Justify your opinion?
 EDI Payments

§ EDI transaction sets provide instructions (for making payment)

to partner’s bank
§ Electronic equivalent of checks

§ All banks should have-

– The ability to perform electronic funds transfers (EFTs)
§ Movement of money from one account to another
– Automated clearing house (ACH) system (service banks use to
manage accounts)
 Which companies should use EDI?

§ Handle a large volume of receptive standard transactions

§ Operate on a very tight margin

§ Face strong competition requiring significant productivity

improvement

§ Received requests from partners companies to convert to

EDI
 Class Discussion

§ A company would like to use social media as a way to

enhance communications with its suppliers.
Ø Do you have any suggestions about how can the company build a
social network to support its supply chain?
 Supply Chain Management (SCM)

§ Supply chain management

– Managing the integration of company
supply management and logistics
activities across multiple participants in
a particular product’s supply chain
– Receiving the product from suppliers and
dispatching it to final destination

§ Ultimate goal
– Achieve higher-quality or lower-cost
product at the end of the chain (at
Figure: Supply chain management
customer level)
 Increasing Supply Chain Efficiencies
(SCM Systems)

§ Companies use Internet and Web technologies to manage

supply chains. That yield:
– Increase in efficiency throughout the chain
§ Increase process speed, reduce costs, increase manufacturing
flexibility
– Allow response to changes in quantity and consumer demand

§ Example: Boeing
– Invested in new information systems increasing production
efficiency of the supply chain
 Using Materials-Tracking Technologies with EDI
(Bar Code)

§ Tracking materials is a troublesome task as they move from one

company to another
§ In many industries, Integration of bar coding and EDI has
become prevalent
§ These bar codes allow companies-
– to scan materials as they are received, and
– to track them as they move from material warehouse into production
FIGURE Shipping label with bar-coded elements from
EDI transaction set 856, Advance Ship Notification
 Using Materials-Tracking Technologies with EDI
(RFID)

§ Radio Frequency Identification Devices (RFIDs)

– Small chips using radio transmissions to track inventory
§ It can read much more quickly, with higher degree of accuracy than
bar codes
– Important development:
§ Made cheaply and in very small sizes
§ No power supply required (passive RFID tag)

§ Wal-Mart (2003): Reduced incidence of stockouts

FIGURE Passive RFID tag
Any other tools use in B2B or SC?
 Class Activity

§ You have just started work as an intern in the purchasing

department of Westridge Systems, a manufacturer of electronic
control systems for manufacturing assembly lines. You do not
know much about electronic equipment, but your supervisor has
given you the task of identifying vendors who sell oscilloscopes
that interface with personal computers.
Ø Use the ThomasNet Web site to locate at least three vendors who offer such a
product.
Ø For each company, determine whether it offers products for sale on a Web site
that discloses prices and details about the products’ specifications.
 B2B electronic commerce models

1. Independent Industry Marketplaces

– Trading exchanges focused on a particular industry
§ Industry marketplaces: focused on a single industry
§ Independent exchanges: not controlled by established buyer or
seller in the industry
§ Public marketplaces: open to new buyers and sellers just entering
the industry

§ Example: Ventro opened industry marketplace ‘Chemdex’ in 1997

(to trade bulk chemicals)
 2. Private Stores and Customer Portals

§ Large established sellers can exert power with small customers in

negotiating price, quality, and delivery terms
§ But these sellers feared industry marketplaces
– As growing number of industry marketplaces may diluting their power in
supply chain
§ Therefore, they have started to use their own website to meet their
customer needs (Dell, Cisco)

§ A private store has password-protected entrance (only members) that

offers negotiated price reductions on limited product selection
– Customer portals offer private stores along with services (safely
information, product usage guideline)
 3. Private Company Marketplaces

§ Large buyer companies purchasing from relatively small vendors

can exert power in purchasing negotiations
§ The procurement department of these companies uses e-
procurement software-
– to manage purchasing function through Web interface
– to automate authorizations and other activities of procurement
process
§ For companies who want to operate their own marketplaces
(Harley-Davidson supply net)
 4. Industry Consortia-Sponsored Marketplaces

§ Marketplace formed by several large buyers in a particular

industry
§ Who make-
– Companies with strong negotiating positions in their industry supply
chains
– But do not have enough power to force suppliers to deal with them
through a private company marketplace

§ Exostar marketplace: Boeing led group of aerospace industry

companies
FIGURE Characteristics of B2B marketplaces
 Class Discussion

§ Internet access from smartphones and tablet devices has greatly

improved the work environment of long-distance truck drivers.
§ Using your favorite search engine, identify at least three apps that
a trucker might use to do two or more of the following: obtain
routing information, manage fuel consumption, find truck stops or
truck-friendly rest areas, record what they have hauled and where
they have hauled it, track required permits, locate Department of
Transportation weigh stations, maintain electronic log books, or
find potential loads and place bids to carry them.
§ For each app you identify, write a paragraph that explains what
the app does, how much it costs, and on what type of devices it
runs.
 Class Discussion

§ Assume you are a procurement officer for an office furniture

manufacturer of steel office equipment. You have a single factory
located in NewYork with 2,000 employees. You sell about 40% of
your office furniture to retail-oriented catalog outlets such as Quill
in response to specific customer orders, and the remainder
of your output is sold to resellers under long-term contracts.
§ You have a choice of purchasing raw steel inputs -mostly cold-
rolled sheet steel- from an exchange and/or from an industry
consortium. Which alternative would you choose and why?