Chapter 15 B2B e-Commerce “In the business world, the rearview mirror is always clearer than the windshield.” ~Warren Buffett

B2B Basics Business-to-business e-commerce involves companies buying and selling to each other online –Represents a larger fraction of total e- commerce than online retailing However… –Not just purchasing –Evolution of B2B e-commerce also places an emphasis on supply-chain management

B2B Basics Businesses generally adopt technology faster than consumers

B2B Basics Businesses generally adopt technology faster than consumers But it still takes time before new capabilities alter business processes –Why?

B2B Basics Two General Types of Net Usage –Participation Basic access and usage -- having the necessary systems to actually use the Internet –Enhancement Use of the Net to change business processes -- adapting existing capabilities with the Internet

B2B Basics To compose and run supply chains, firms follow systematic processes Information technology can improve efficiencies in costs and time –Hiring professional buyers –Cost of placing orders & making payments –Shortening cycle time –Timely information exchange

B2B Basics Before the public Internet, companies used electronic data interchanges (EDIs) for point-to-point communication –Concept emerged during 1948 Berlin airlift However… –Verification needed to ensure non-repudiation –It operates as a sequential transmission –Emphasis placed on security & reliability from 3 rd party provider

Buying Center Participants* Users –those who will use the product/service; often initiate proposal & help define specifications Influencers –those who influence the buying decision; help define specifications & provide information for evaluating alternatives Deciders –those with power to decide on product requirements and/or suppliers Approvers –those who must authorize the actions of the buyers or deciders Buyers –those with authority to select the supplier & arrange terms of purchase; major role is in selecting vendors & negotiating Gatekeepers –those with the power to prevent sellers from reaching members of the buying center

B2B e-Commerce and Customers Internet systems tailor customer acquisition efforts & lower transactional costs through automated ordering

B2B e-Commerce and Customers Internet systems tailor customer acquisition efforts & lower transactional costs through automated ordering For new sales targets, multiple decision makers can be targeted with role-specific messages

B2B e-Commerce and Customers Internet systems tailor customer acquisition efforts & lower transactional costs through automated ordering For new sales targets, multiple decision makers can be targeted with role-specific messages For repeat purchases, Internet ordering systems lower costs & improve efficiency

B2B and e-Procurement Direct materials –Are fundamental to the particular production activities of the firm Indirect materials –Support the operation of the firm but are not specific to any particular production activity Required for operations, but more closely affect costs.

B2B and e-Procurement Procurement of indirect materials: –Include office supplies & spare parts for machinery Benefits of Internet procurement systems –Less costly & more flexible –Eliminate the problem of “maverick buying” –Online catalogs make customization easier –Availability of new catalogs decreases search –Speeds approval time & receipt of goods –Eliminates redundant paperwork & minimizes errors in ordering

B2B and e-Procurement Contracting for services: –Coordinating global work teams through Internet systems –Speeding process for screening, clearances, time sheets –Help tracking spending, contract terms and budgets

B2B and e-Procurement Procurement of direct materials and the dynamic bidding process –Transactional exchanges are aided by electronic marketplaces, while relational often requires more collaborative procurement –Buyer benefits Reduced direct material costs & faster decisions on final price –Supplier concerns Greater emphasis on price over other product attributes; yet eased with specific auction rules

Marketplaces for e-Procurement The speculative boom of independent marketplaces the 1990s was doomed by the abilities of existing firms and too many entrants in overlapping markets.

Marketplaces for e-Procurement Incumbent-backed firms able to capitalize on existing market positions –Suppliers concerns about new pricing pressures meant limited digital catalogs –Buyers, meanwhile, wary of revealing ordering practices to competition

Marketplaces for e-Procurement Incumbent-backed firms able to capitalize on existing market positions –Suppliers concerns about new pricing pressures meant limited digital catalogs –Buyers, meanwhile, wary of revealing ordering practices to competition Existing intermediary-backed markets and independent marketplaces in fragmented markets able to leverage advantages of the Internet

Supply Chain Coordination Internet-based information hubs –Create demand visibility & expand use of vendor-managed inventory systems Helps minimize the “Bullwhip” effect

Supply Chain Coordination Internet-based information hubs –Create demand visibility & expand use of vendor-managed inventory systems Helps minimize the “Bullwhip” effect –Accelerates new product development, the coordination of design alterations, & outsourcing of production

Supply Chain Coordination Internet-based information hubs –Create demand visibility & expand use of vendor-managed inventory systems Helps minimize the “Bullwhip” effect –Accelerates new product development, the coordination of design alterations, & outsourcing of production –Simplify data synchronization between business partners