Chapter 5

Company-Centric B2B and

Collaborative Commerce
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Learning Objectives
Describe the B2B field
Describe the major types of B2B models
Describe the characteristics of the sell-side
marketplace
Describe the sell-side intermediary models
Describe the characteristics of the buyside marketplace and e-procurement

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Learning Objectives (cont.)

Explain how forward and backward auctions
work in B2B
Describe B2B aggregation and group
purchasing models
Describe collaborative e-commerce and
interorganizational systems
Describe infrastructure and standards
requirements for B2B
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General Motors B2B Initiatives

The Problem
EC initiativesbuild-to-order project to be
in place by 2005 reducing inventory of
finished cars
What to do with manufacturing machines
that are no longer sufficiently productive
(assets problem)
Resource problem relating to procurement
of commodity products
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General Motors (cont.)

The Solution
TradeXchange (now part of Covisint) online
auctions of items like used machines for
manufacturing
Significantly decreases time for sales
Increases dollar amount of the sales

EC initiatives at TradeXchange
Capital assets problemimplemented its own
electronic market to conduct forward auctions
Procurement problemautomated the
bidding, creating online reverse auctions on
its e-procurement site
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General Motors (cont.)

The Results
Within just 89 minutes after the first
forward auction opened, eight presses
were sold for $1.8 million
In the first online reverse auction, GM
purchased a large volume of rubber
sealing packages for vehicle production
at a significantly lower than the price GM
had been paying through negotiated by
manual tendering
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Concepts, Characteristics,
and Models of B2 EC
Basic B2B Concepts
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

Market Size and Content

Expected to grow from $1.1 trillion in 2003 to
$10 trillion by 2005, the percentage of Internetbased B2B from 2.1% in 2000 to 10% in 2005
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Concepts, Characteristics,
and Models of B2 EC (cont.)
B2B EC Characteristics
Parties to the transaction
Online intermediaryan online third-party that
brokers a transaction between a buyer and a
seller; can be virtual or click-and-mortar;
buyers; sellers

Types of transactions
Spot buyingthe purchase of goods and
services as they are needed, usually at
prevailing market prices
Strategic sourcingpurchases involving longterm contracts that are usually based on private
8
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Concepts, Characteristics,
and Models of B2 EC (cont.)
Types of materials
Direct materialsmaterials used in
the production of a product (e.g.,
steel in a car or paper in a book)
Indirect materialsmaterials used to
support production (e.g., office
supplies or light bulbs)
MROs (maintenance, repairs, and
operations)indirect materials used
in activities that support production
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Concepts, Characteristics,
and Models of B2 EC (cont.)
Direction of trade
Vertical marketplacesmarkets that
deal with one industry or industry
segment (e.g., steel, chemicals).
Horizontal marketplacesmarkets
that concentrate on a service 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 B2 EC (cont.)
The Basic B2B Transaction Types
Sell sideone seller to many buyers
Buy sideone buyer from many sellers
Exchangesmany sellers to many buyers
Collaborative commercecommunication
and sharing of information, design, and
planning among business partners

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Exhibit 5.1
Types of B2B E-Commerce

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12

One-to-Many and Many-to-One:

Company-Centric Transactions
Company-centric ECe-commerce that
focuses on a single companys buying
needs (many-to-one, or buy-side) or
selling needs (one-to-many, or sell-side)
Private e-marketplacesmarkets in
which the individual sell-side or buyside company has complete control
over participation in the selling or
buying transaction
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13

Many-to-Many: Exchanges
Exchangesmany-to-many emarketplaces, 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;
also called trading communities, or
trading exchanges
Public e-marketplacesthird-party
markets that are open to all interested
parties (sellers and buyers)
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14

Concepts, Characteristics,
and Models of B2 EC (cont.)
Supply chain relationships in B2B
Interrelated subprocesses and roles
B2B applications offer competitive
advantages for supply chain management
(SCM)

Virtual service industries in B2B

Travel and tourism services
Real estate
Online stock trading
Electronic payments
Online financing
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Concepts, Characteristics,
and Models of B2 EC (cont.)
Benefits of B2B
Eliminates paper and reduces administrative costs
Expedites cycle time
Lowers search costs and time for buyers
Increases productivity of employees dealing with
buying and/or selling
Reduces errors and/or improves quality of services
Reduces inventory levels and costs
Increases production flexibility, permitting just-intime delivery
Facilitates mass customization
Increases opportunities for collaboration
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Sell-Side Marketplaces:One-to-Many
Sell-side e-marketplacea Web-based
marketplace in which one company sells
to many business buyers, frequently
over an extranet
3 major methods for direct sale in the
one-to-many model:
Selling from electronic catalogs
Selling via forward auctions
One-to-one selling under a negotiated, longterm contract
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Sell-Side Marketplaces (cont.)

Virtual sellerssellers in the sell-side
marketplace can be click-and-mortar
manufacturers or intermediaries, usually
distributors or wholesalers
Customer service
Milacron, Inc.
Site contains 55,000 products, easy to use,
securely handles selection, purchase, application
Technical serviceexpanded to provide a higher
level of service
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Buying from Virtual Seller

Bigboxx.com
Bigboxx.com.hk of Hong Kong
B2B office supply retailer services
Goalsell products in various SE Asian
countries
Offers more than 10,000 items
Uses more than 300 suppliers

Company portal attractive, easy to use

Browse online catalogs
Use search engines
Paymentscash or check upon delivery,
automatic payments, credit card, purchasing card
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Bigboxx.com (cont.)
Delivery
Owns trucks and warehouses
Delivery scheduled online
Ordering system integrated with SAP-based backoffice system

Value-added services
Track status of order
Check stock availability
Promotions
Customized prices
Group accounts and central approval
Standing orders automatically activated
Large number of reports and data available
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Exhibit 5.2
Sell-Side B2B Marketplace
Architecture

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Direct Sales from Catalogs

Companies may:
Offer one catalog for all customers
Customized catalog for each customer
Facilitate the B2B direct sale by providing
the buyer with a buyer customized
shopping cart

Configuration and customization

Efficient customization for direct sales
Business customers customize products,
receive price quote, submit order
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22

Direct Sales from Catalogs (cont.)

Benefits
Lower order-processing costs
Faster ordering cycle
Fewer errors in ordering and product
configuration
Lower search costs for buyers
Lower search costs for sellers
Lower logistics costs
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Direct Sales from Catalogs (cont.)

Benefits (cont.)
Ability to offer different catalogs and prices
to different customers and to customize
products and services efficiently

Limitations
Channel conflicts with distribution systems
High cost when traditional EDI used
Large number of business partners is
needed to justify system
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Selling Via Auctions

Using auctions on the sell-side
Revenue generation
Increased page views
Stickinesscharacteristic of customer
loyalty to a Web site, demonstrated by
the number and length of visits to a site

Member acquisition and retentionbidding

transactions result in additional registered
members

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Selling Via Auctions (cont.)

Selling from own site when:
Large companies that conduct auctions
frequently dont benefit from using
intermediaries
E-marketplace already in use, cost of
adding auction not too high

Intermediary-oriented e-marketplace
an e-marketplace in which
intermediaries operate
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Selling Via Auctions (cont.)

Using intermediaries when:
No resources required
Own and control auction information
Fast time to market
Searching and reporting
Search and report all auction activities
Standard reports available
Additional analysis of complex
information

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Selling Via Auctions (cont.)

Billing and collection
Automatic calculation of shipping weights
and charges
Paymentencrypted credit card data
Billing informationeasily downloaded into
existing systems

Successful if:
Sufficient number of loyal customers
Products well known
Price not major purchasing criteria
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CISCO Connection Online (CCO)

Benefitssaves the company $363 million per
year in technical support, human resources,
software distribution, marketing material
Customer serviceCisco Connection online
Online orderingInternet Product Center
builds virtually all products to order
Order statuscustomer tools for finding
answers to order status inquiries
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Cisco Connection Online (CCO) (cont.)

Benefits to Cisco
Reduced operating costs for order taking
Enhanced technical support and customer service
Reduced technical support staff cost
Reduced software distribution costs
Lead times reduced fro 4-10 days to 2-3 days

Benefits to customers
Quick order configuration
Immediate cost determination
Collaboration with Cisco staff
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30

Marshall Industries
Marshall Industries(a subsidiary of

AvnetMarshallavnet.com) multinational

distributor of electronic components known

for its innovative uses of IT and the Web
Products and services
MarshallNet
Marshall on the Internet (portal)
Strategic European Internet
Electronic Design Center
PartnerNet
NetSeminar
Education and
News Portal
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Marshall Industries (cont.)

Survival strategy
Continuous improvement programs and
innovations
Team-based organization, flat hierarchy,
decentralized decision making
Profit sharing compensation for salespeople
CRM highly promoted
Web-based services create value between
suppliers and customers
EC initiatives supported by:
Changing internal organization
Changing internal procedures
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Boeings PART Marketplace

Acts as an intermediary between the
airlines and parts suppliers
Provides a single point of online access for
airlines and parts providers to access the data
needed

Goal: provide its customers with one-stop

shopping for online parts and maintenance
information and ordering capability
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33

Boeings PART Marketplace (cont.)

Spare parts business using traditional EDI
Mechanic tells purchasing department parts are
needed, purchase is approved, purchase is made
Large airlines connect to Boeing's VAN
Boeing finds parts and delivers

Debut of PART on the Internet

Encourages customers to order parts
electronicallycheap, easy, fast
50% of customers using Internet within first year

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Boeings PART Marketplace(cont.)

Benefits of PART online
Improved customer service
Significant operating savings
New sales opportunities
Customer service online reduced
Portable access to technical
drawings/support
Portable Maintenance Aid (PMA)solves
maintenance problems
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Boeings PART Marketplace (cont.)

Benefits to Boeings customers
Increased productivityless time searching
for information
Reduced costsdelays at gate reduced
because all information is available
Increased revenuesfaster service
provides time savings

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Buy Side Marketplaces:

One-from-Many
Procurement methods
Buy from manufacturers, wholesalers, or
retailers at their storefronts, from
catalogs,and by negotiation
Buy from the catalog of an intermediary
Buy from an internal-buyers catalog
Conduct a bidding or tendering system
Buy at private or public auction sites
Join a group-purchasing system
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Buy Side Marketplaces:

One-from-Many (cont.)
Procurement managementthe coordination of
all the activities relating to purchasing goods
and services needed to accomplish the mission
of an organization
Inefficiencies in procurement management
Purchasing personnel spend time and effort on
procurement activities
Qualifying suppliers
Negotiating prices and terms
Building rapport with strategic suppliers
Carrying out supplier evaluation and
certification
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Buy Side Marketplaces:

One-from-Many (cont.)
Buyers are sometimes too busy with the
details of the smaller items
Organizations address this imbalance by
implementing new purchasing models

Potential inefficiencies:
Delays
Paying too much for rush orders
Maverick buyingunplanned purchases
of items needed quickly, often from nonapproved vendors or at higher prices
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Exhibit 5.4
Traditional Procurement Process

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Buy Side Marketplaces:

One-from-Many (cont.)
Goals of e-procurement
Increase purchasing agent productivity
Lower purchasing prices of items
Improve information flow and management
Minimize maverick (unplanned) buying
Improve payment process
Streamline purchasing process to make it
simple and fast
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Buy Side Marketplaces:

One-from-Many (cont.)
Goals of e-procurement (cont.)
Reduce administrative processing cost per
order
Find new suppliers and vendors to provide
faster/cheaper goods and services
Integrate procurement process with
budgetary control in an efficient and effective
way
Minimize human errors in buying or shipping
process
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Buy Side Marketplaces:

One-from-Many (cont.)
Implementing e-procurement
Fit e-procurement into company EC strategy
Review and change procurement process
itself
Provide interfaces between e-procurement
with integrated EIS
Coordinate buyers information system with
the sellers

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Buy Side E-Marketplaces:

Reverse Auctions
Buy-side e-marketplacea Web-based
marketplace in which a buyer opens an
electronic market on its own server and
invites potential suppliers to bid on the
items the buyer needs; also called the
reverse auction, tendering, or bidding
model
Request for quote (RFQ)the invitation to
a buy-side marketplace (reverse auction)
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44

Exhibit 5.6
Buy-Side B2B Market Architecture

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45

Conducting Reverse Auctions

Reverse auctions administered from a
companys Web site
Bidding process lasts a day or more
Bidders may bid only once or view the lowest bid
and rebid several times

Increasing number of reverse auction sites

makes it impossible for suppliers to monitor
all of them
Online directories list open RFQs
Use software search-and-match agents to reduce
the human burden in the bidding process
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Bidding Through a Third-Party

Auctioneer: Freemarkets.com
United Technologies Corp. needs suppliers
to make $24 million worth of circuit boards
2,500 suppliers are identified as possible
contractors
List is submitted to FreeMarkets
(freemarkets.com)

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Freemarkets.com (cont.)
FreeMarkets reduced the list to 50, based
on considerations including:
Plant location
Size of supplier
Plant capacity
Customer feedback
Detailed evaluation of the candidates

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Freemarkets.com (cont.)
3-hour auction conducted of online
competitive bidding:
First bid was seen by all bidders
Using reverse auction approach, the
bidders reduced their bids

Comprehensive analysis of several of the

lowest bidders
Then recommended the winners and
collected its commission fees
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Procurement Revolution at GE
TPN (now part of gxs.com)
Purchasing was inefficienttoo many
administrative transactions
Process for each requisition took 7 days
Complex and time-consuming
Could only send out bids for 2 or 3 suppliers

Trading Process Network (TPN)electronic bids

Entire process takes 7 days (for suppliers to
bid)
2 hours to send information to suppliers
Evaluate and award bids same day
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Procurement Revolution at GE (cont.)

Benefits to GE
Labor declined 30% and material costs
declined 5%-50%--wider base of suppliers
online
Redeployment of 50% of the staff
Takes half the time to identify suppliers,
prepare a request for bid, negotiate a price,
and award the contract
Invoices automatically reconciled reflecting
modifications
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Procurement Revolution at GE (cont.)

Benefits to buyers
Worldwide supplier partnerships
Current business partners
Strengthen relationships
Streamline sourcing process

Rapid distribution of information

Transmit electronic drawings to multiple
suppliers
Decrease sourcing cycle time
Quick receipt and comparison of pricing bids
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Procurement Revolution at GE (cont.)

Benefits to suppliers
Increased sales volume
Expanded market reach, finding new buyers
Lowered administration costs for sales and
marketing activities
Shortened requisition cycle time
Improved sales staff productivity
Streamlined bidding process
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Aggregating Catalogs
Aggregating suppliers catalogs: an
internal marketplace
Maverick buying to save time leads to high
prices
Aggregating all approved suppliers
catalogs in one place

Reduced number of suppliers

Buyers at multiple corporate locations
Fewer and remote suppliers
Larger quantity/lower costs
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Buying from MasterCard

Internationals Internal Catalog
Online buying program at MasterCard:
Allows corporate buyers to select goods and
services from companys electronic catalog
Goal is to consolidate buying activities from
multiple corporate sites, improve processing
costs, reduce the supplier base

Procurement department defines:

Scope of products or projects to buy
Invites vendors to bid or negotiate prices
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MasterCard International (cont.)

Contract prices are stored in the internal electronic
catalog
Final buyer at MasterCard compares available
alternatives
Organizational purchasing decision coupled
with an internal workflow management system
Internal electronic catalog is updated manually
or by software agents
Payments are made with MasterCards
corporate procurement card
By 2002, the system was being used by more
than 2,500 buyers
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Group Purchasing
Group purchasingaggregation several
buyers into volume purchases, so that
better prices can be negotiated
Internal aggregation
Economy of scale
Reduced transaction processing cost

External aggregation
Aggregating demand online
Putting together orders from multiple
buyers to make large volumes/lower costs
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57

Exhibit 5.7
Group Purchasing Process

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58

Electronic Bartering
Bartering exchangean 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
Exchange of goods or services without the
use of money
Exchange a surplus for other need
Benefits:
Faster than manually
Easier to match
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Collaborative Commerce (C-Commerce)

Collaborative commerce (c-commerce)
commerce consisting of activities between
business partners in jointly planning, designing,
developing, managing,and researching products
and services
Web-based systems used between and
among suppliers for:
Communication
Planning
Information discovery

Design
Information sharing

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Collaborative Commerce (cont.)

Varieties of c-commerce:
Joint design efforts
Forecasting
Between and within organizations

Aids communication and collaboration

between headquarters and subsidiaries,

franchisers and franchisees

C-commerce platform provides e-mail,

message boards, chat rooms, online

corporate data access around the globe,
61
no matter what Prentice
the Hall,
time
2003 zone

Webcor Construction
Goes Online with Its Partners
Webcor suffered from too much paperwork
and poor communication with its:
Architects
Designers
Building owners
Subcontractors

Webcors goal: to turn its computer-aided

design (CAD) drawings, memos, and other
information into shared digital information
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62

Webcor (cont.)
Webcor uses ASP that hosts its projects
on a secured extranet
Major problem was getting everyone to
accept software:
Complex
User training is necessary

Webcor was in a strong enough position to

choose not to partner with anyone who
would not use ProjectNet
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Webcor (cont.)
Webcors business partners can post send,
or edit CAD drawings, digital photos,
memos, status reports, project
histories
Partners have instant access to new
building drawings
Central meeting place where users can
both download and transmit information to
all parties, all with a PC
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RetailerSupplier Collaboration:
Target Corporation
Target Corporation is a large retail
conglomerate:
Conducts EC activities with about 20,000
trading partners
1998established an extranet-based
system for those partners that were not
connected to its VAN-based EDI.

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Target Corporation (cont.)

The extranet enabled the company to:
Reach many more partners,
Use many applications not available on
the traditional EDI
Streamline its communications and
collaboration with suppliers
Business customers to create
personalized Web pages
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Continuous Replenishment:
Warner-Lambert
Warner-Lambert (WL) served as a pilot site
for a program called Collaborative Planning,
Forecasting, and Replenishment (CPFR)
Shared strategic plans, performance data,
and market insight with Wal-Mart
Trading partners collaborate on making
demand forecasts
WL increased its products shelf-fill rate from
87 percent to 98 percent
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Warner-Lambert (cont.)
WL is involved in another collaborative retail
industry projectSupply-Chain Operations
Reference (SCOR):
Divides supply chain operations into parts
Gives a framework with which to evaluate
the effectiveness of their processes along
the same supply chains to:
Manufacturers
Suppliers
Distributors
Retailers
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Reduction of Design Cycle Time:

Adaptec, Inc.
Microchip manufacturer supplying
electronic equipment makers
Outsourced manufacturing tasks
Delivery times exceeded their competitors

Solution to the problem

Extranet and enterprise-level supply chain
integrated software
Significantly reduced order-to-product
delivery time
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Reduction of Product Development

Time: Caterpillar, Inc.
Heavy machinery manufacturer uses extranet
Request for customized component directly
to designers and suppliers ship to buyers
Connect engineering and manufacturing
division with worldwide
Factories
Distributors Customers
Suppliers
Overseas

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Barriers to C-Commerce
C-commerce is moving ahead fairly
slowly because:
Technical reasons involving integration,
standards, and networks
Security and privacy concerns over who has
access control of information stored in a
partners database
Internal resistance to new models and
approaches
Lack of internal skills to conduct c-commerce

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71

Interorganizational Collaboration
at Nygard of Canada
Nygard has become a leader in adopting IT
and e-commerce in the apparel industry
Company stays competitive by using EC to
control costs of labor and manufacturing
Developed an ERP and supply chain
management that controls all internal
operations, purchasing, product
development, accounting, production
planning, sales

This enabled the company to develop tight

integration with its trading partners
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Nygard of Canada (cont.)

The moment that a customer buys a pair of pants
at a partners retail store:
Information moves from the POS terminal
Automatically generates a reorder at Nygard

SCM:
Matches customers orders with the right fabrics
Searches the market pool for the most efficient
combinations of other material for use with
those fabrics

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Nygard of Canada (cont.)

Sales trigger orders
Manufacturing automatically industries, and
global manufacturers are willing to operate
with razor-thin margins as fabrics, zippers,
and buttons
The moment that raw material is used, an
automatic reorder of the material is generated
Allows just-in-time production
Quick order delivery (sometimes same
day)
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Nygard of Canada (cont.)

Web-based control system enables
the company to:
Conduct detailed profitability studies
Decisions are evaluated by impacts on
the bottom line
Decision support systems (DSS) models
are used for this purpose

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Infrastructure for B2B

Server to host database and applications
Software for executing sell-side (catalogs)
Software for conducting auctions and
reverse auctions
Software for e-procurement (buy-side)
Software for CRM
Security hardware and software
Software for building a storefront
Software for building exchanges
Telecommunications networks and protocols
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Extranet and EDI

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 EDIEDI that runs on the
Internet and so is widely accessible to
most companies, including SMEs
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Extranet and EDI

Extranetssecured networks (by VPN),
usually Internet-based, that allow business
partners to access portions of each others
intranets; extended intranets.

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Integration
Integration with existing information
systems issues
Intranet-based work flow
Database management systems (DMBS)
Application packages
ERP
Back-end sell-side integration works for
sellers but not buyers and vice versa
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Integration (cont.)

Integration with business partners

Easy integration with one company-centric
side
Not easy to integrate for many buyers or
sellers
Need buyer owned shopping cart that can
interface with back-end information systems
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The Role of XML in

B2B Integration
Companies interact easily and effectively by
connecting to their servers, applications,
databases
Standard protocols and data-representation
schemes are needed
Web is based on the standard
communication protocols useful only for
displaying static visual Web pages:
TCP/IP
HTTP
HTML
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The Role of XML in

B2B Integration (cont.)
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
Used to increase:
Interactivity
Accessibility with speech recognition
systems
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XML Unifies
Air Cargo Tracking System
B2B intermediary, TradeVan Information
Services of Taiwan provides information
services about the cargo flights of different
airlines
Different information systems have different
query results
XML facilitates data exchange between
heterogeneous databases
Information can be presented on wireless
application protocol (WAP)-based cell phones
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Air Cargo Tracking System (cont.)

System is expected to:
Reduce delays significantly
Benefit of all members of the supply
chain
Returns a standardized yet personalized
presentation for different airlines
Enables customs brokers to reduce the
cycle time by preparing declarations of
imports faster
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Air Cargo Tracking System (cont.)

Buyers and other supply chain partners
can schedule production lines with
precision and in advance
Quality of door-to-door delivery companies
is improved through fast communication
Answers to queries can be derived much
faster
Improves the supply chain by reducing:
Delivery lead times
Inventory levels
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The Role of Software Agents

in B2B EC
Agents role in the sell-side marketplace
B2C comparison-shopping
B2B agents collect information from sellers
sites for buyers

Agents role in the buy-side marketplace

Assisting large number of buyers requesting
quotes from multiple potential suppliers in
buy-side

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Managerial Issues
Can we justify the cost?
Which vendor(s) should we select?
Which model(s) should we use?
Do we need B2B marketing?
Should we reengineer our procurement
system?
What restructuring will be required for the shift
to e-procurement?
What integration would be useful?
What are the ethical issues in B2B?
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Summary
The B2B field
The major B2B models
The characteristics of sell-side marketplaces
Sell-side intermediaries
The characteristics of buy-side marketplaces
Forward and reverse auctions
B2B aggregation and group purchasing
Collaborative EC
Characteristics of Internet-based EDI and the
role of XML
Prentice Hall, 2003

88