B2B Exchange and the Internet Differences between B2B and B2C Internet Influences on B2B Exchange Processes Types and function of B2B Market-makers

B2B versus B2C Exchange Some things are similar Bi-directional exchange of resources Goal of effecting a transaction Other things are different Great limits on decision time Increased asset-specificity Pricey Sizable More repeat purchasing

Characterizing B2B Exchange By type of customer For production of goods/services For sale of goods and services By nature of product demand Derived demand (as fxn of consumer need) Narrower markets with more volume By form of exchange processes More formalized processes (procurement)

Online B2B: A Big Business

An International Marketspace

Internet B2B: Purposes, Processes, and Participants Purposes for B2B Exchanges Reselling (wholesalers and retailers as middlemen: $65.6B) Building products (valued-added by OEM’s: $40.6B) Conducting business practices (MRO’s: $25B) Purposes define types of markets Vertical – specific industry, narrow focus Horizontal – same good/service across several industries

B2B Exchange Processes Stages of the process: Information, negotiation, settlement Relationship development affects processes New relationship  new buy behaviors (info) Familiar relationship  modified rebuy (negotiation) Established relationship  straight rebuy (settlement, based on existing agreement) Internet effects on stage-related behaviors As content source for information gathering As communications resource for negotiation As channel resource for aspects of trade settlement

B2B Exchange Participants Direct v. indirect exchanges Direct involve buyer/seller interaction Indirect involve intermediaries (e.g., e-hubs) The Internet affects direct exchanges By enabling buyers to find sellers, and vice versa By facilitating the initiation of contact (e.g., WRF’s) The Internet also affects indirect exchanges Creates buyer/seller links by aggregating them

Types of B2B Intermediaries Consortia-led exchanges Companies share ownership Form of strategic alliance Proprietary exchanges Privately owned Integrates buying/selling activities of the supply chain members Third-party exchanges Market-makers who are not owners

Characteristics of E-hubs Operate within vertical or horizontal markets Enable near real-time communication Check inventory availability React to price fluctuations Decouple channel flows (product/info) Provides logistics benefits Increases geographic market scope

The Value of a B2B Hub Value is added in two ways Aggregation: increasing the numbers of buyers for a seller, and vice versa Characterized by pre-set prices and variety E.g., a catalog approach Matching: facilitating exchanges Builds on aggregation to achieve liquidity Price negotiation is the basis for exchange E.g., auctions and bid-ask exchanges

A Typology of E-hubs Hubs can be organized by what and how they buy (Sawhney and Kaplan, 1999) What? = manufacturing, operating How? = spot v. systematic sourcing In general, systematic sourcing  aggregation Spot sourcing  matching By combining what and how, we get four types of hubs Yield managers, MROs, exchanges, and catalogs Hubs can be neutral or biased