B2B E-Commerce: Supply Chain Management and Collaborative Commerce Chapter 12

Learning Objectives Define the term supply chain and describe its components Describe supply chain management and its goals Discuss the evolution and growth of B2B e-commerce, as well as its potential benefits and challenges Understand how procurement and supply chains relate to B2B e-commerce Understand the different characteristics and types of Net marketplaces Understand the objectives of private industrial networks, their role in supporting collaborative commerce, and the barriers to their implementation Identify major trends in supply chain management and collaborative commerce

What is a supply chain? A supply chain refers to the flow of materials, information, payments, and services from raw materials suppliers, through factories and warehouses, to the end customers There are typically three types of flows in the supply chain: Materials Information Financial In some supply chains there are fewer types of flows for example, in service industries there may be no physical flow of materials

Problems Along the Supply Chain The problems along the supply chain stem mainly from two sources: Uncertainties Need to coordinate several activities, internal units, and business partners A major source of uncertainty is the demand forecast that may be influenced by competition, prices, weather conditions, technological development, and customers’ general confidence Other uncertainties exist in delivery times Quality problems of materials and parts may also create production delays

Solutions to Supply Chain Problems Over the years, organizations have developed many solutions to the supply chain problems One of the earliest solutions was vertical integration where one organization owns the firms involved in each step in the supply chain The most common solution has been building inventories as an “insurance” against supply chain uncertainties The most recent solution has been increased use of interorganizational information systems for sharing information between supply chain partners and more accurate measuring of supply chain performance. These systems include: MRP ERP supply chain systems various forms of Internet-based B2B e-commerce

B2B E-Commerce and SCM The total amount of B2B trade in the US in 2015 was about $14.6 trillion B2B e-commerce contributed about $6.3 trillion of that amount, and by 2019 this should grow to $8.6 trillion in the US The process of conducting trade among business firms is complex and requires significant human intervention, and therefore, consumes significant resources Some firms estimate that each purchase order for support products costs them at least $100 in administrative overhead

B2B E-Commerce and SCM (cont.) Administrative overhead includes processing paper, approving purchase decisions, spending time using the telephone and fax to search for products, arranging for shipping, and receiving the goods Across the economy, this adds up to trillions of dollars annually being spent for procurement processes that could potentially be automated If even just a portion of inter-firm trade were automated, then literally trillions of dollars might be released for more productive uses

The Evolution of B2B E-Commerce B2B commerce has evolved over a 35-year period through several technology- driven stages These stages include: Automated order entry systems Electronic data interchange (EDI) B2B e-commerce Web sites Net marketplaces Private industrial networks Social networks and mobile apps

B2b e-commerce technology platforms (figure 12.1)

Growth of b2b commerce (2010-2019) (figure 12.2)

Potential Benefits of B2B E-Commerce Lower administrative costs Lower search costs for buyers Reduce inventory costs Lower transaction costs Increase production flexibility Improve quality of products by increasing cooperation among buyers and sellers Decrease product cycle time Increase opportunities for collaborating with suppliers and distributors Create greater price transparency Increase the visibility and real-time information sharing among all participants in the supply chain network

The procurement process (figure 12.3)

Types of Procurement 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 Indirect goods Second, firms use two different methods for purchasing goods: Contract purchasing Spot purchasing

Main Types of Internet-Based B2B Commerce There are two generic types of Internet-based B2B commerce systems: Net marketplaces Private industrial networks (PINs) Net marketplaces bring together potentially thousands of sellers and buyers into a single digital marketplace operated over the Internet Private industrial networks bring together a smaller number of strategic business partner firms that collaborate to develop highly efficient supply chains

Net Marketplaces One of the most compelling visions of B2B e-commerce is that of an electronic marketplace on the Internet that would bring thousands of fragmented suppliers into contact with hundreds of major purchasers of industrial goods In pursuit of this vision, well over 1500 Net marketplaces sprang up in the early days of e-commerce Unfortunately, many of them have since disappeared but some still survive

Pure types of Net marketplaces (figure 12.9)

Private Industrial Networks Private industrial networks (PINs) today form the largest part of B2B e- commerce Industry analysts estimate that, in 2015, over 50% of B2B expenditures by large firms were for development of private industrial networks PINs can be considered the foundation of the “extended enterprise,” allowing firms to extend their boundaries and their business processes to include supply chain and logistics partners A PIN is a Web-enabled network for the coordination of trans-organizational business processes (sometimes also called collaborative commerce)

Private industrial network objectives The specific objectives of a PIN include: Developing efficient purchasing and selling processes industry-wide Developing industry-wide resource planning Increasing supply chain visibility Achieving closer buyer-seller relationships Demand forecasting, communications, conflict resolution Operating on a global scale Reducing industry risk by preventing imbalances of supply and demand Support product design, marketing planning, and demand forecasting

Implementation Barriers There are a number of barriers to successful collaborative commerce implementation Participating firms are required to share sensitive data with their business partners Requires a significant investment of time and money Requires a change in mindset and behavior for employees – they must shift their loyalties from the firm to the wider trans-organizational enterprise and recognize that their fate is intertwined with the fate of their suppliers and distributors All firms lose some of their independence

Trends in SCM and Collaborative Commerce Just-in-time and lean production Supply chain simplification Work closely with a smaller group of strategic supplier firms Supply chain black swans: adaptive supply chains Accountable supply chains: labor standards Sustainable supply chains: lean, mean and green Supply chain management systems: EDI, mobile B2B, and B2B in the cloud Continuously link partner information systems Collaborative commerce Use of digital technologies to collaboratively design, develop, build, and manage products across their life cycle (support product development and order fulfillment activities) Social networks and B2B: the extended social enterprise