Chapter 5 Business-to-Business Strategies: From Electronic Data Interchange to Electronic Commerce

Purchasing, Logistics, and Support Activities Purchasing activities äInclude identifying vendors, evaluating vendors, selecting specific products, and placing orders Supply chain äPart of an industry value chain that precedes a particular strategic business unit Procurement äIncludes all purchasing activities, plus the monitoring of all elements of purchase transactions Supply management äTerm used to describe procurement activities Sourcing äProcurement activity devoted to identifying suppliers and determining their qualifications E-procurement or e-sourcing äUse of Internet technologies in procurement and sourcing activities

Trends in Supply Chain Management Some Supply Chain Management trends include: äSupply Chain Simplification äElectronic Data Interchange (EDI) äCollaborative commerce äNet Marketplaces and Private Industrial Networks

Supply Chain Simplification The reduction of the size of a firm’s supply chain äFirms work closely with a strategic group of suppliers to reduce product costs and administrative costs äLong term contract purchases containing pre-specified product quality requirements and pre-specified timing goals äShown to improve end product quality and ensure uninterrupted production Discuss what some simplification strategies would be for: Ford; Wal-Mart; Macy’s; Wegmans

Electronic Data Interchange Developed to reduce cost, delays, and errors inherent in the manual exchanges of documents ädiffers from unstructured message because its messages are organized with distinct field for each important piece of information äEDI industry committees define the structure and information fields of electronic documents for that industry

EDI on the Internet Initial roadblocks to conducting EDI over the Internet included: äConcerns about security äThe Internet’s inability to provide audit logs and third- party verification of message transmission and delivery Nonrepudiation äAbility to establish that a particular transaction actually occurred Internet EDI or Web EDI äEDI on the Internet Open architecture of the Internet allows trading partners unlimited opportunities for customizing information interchanges New tools such as XML help trading partners be even more flexible in exchanging detailed information

Value-Added Networks Direct connection EDI äRequires each business in the network to operate its own on-site EDI translator computer äEDI translator computers are connected directly to each other using modems and dial-up telephone lines or dedicated leased lines Indirect connection EDI äTo send an EDI transaction set to a trading partner: äVAN customer connects to the VAN then forwards an EDI- formatted message to the VAN äVAN logs the message and delivers it to the trading partner’s mailbox äTrading partner then dials in to the VAN and retrieves its EDI- formatted messages Users need to support only the VAN’s one communications protocol. The VAN: Records message activity in an audit log; can provide translation between different transaction sets used by trading partners; can perform automatic compliance checking

Disadvantages of Using a VAN Cost äMost VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee Using VANs can become cumbersome and expensive for companies that want to do business with a number of trading partners, each using different VANs

Elements of a Collaborative Commerce System Using digital technologies to permit organizations to collaboratively design, develop, build, and manage products through their life cycles Exercise: Do a search on “collaborative commerce.” What is it? What are some firms involved?

Net Marketplaces & Private Networks

Main Types of Internet-based B2B Commerce Net Marketplaces (also referred to as exchanges or hubs) ä assemble thousand of sellers and buyers in a single digital marketplace on the Internet äowned be either the buyer or the seller äoperate as independent intermediaries between the buyer and seller Private industrial networks äbring together a small number of strategic business partners who collaborate to develop efficient supply chains and to satisfy customer demand for product äby far the largest form of B2B commerce, presently comprising 93% of the total computer-assisted inter- firm trade

Two Main Type of Internet-based B2B Commerce

Types of Procurement Purchases of direct goods ädirectly involved in the production process Purchases of indirect goods äneeded for production process but not directly involved in creating the end product. äoften called MRO goods -- maintenance, repair, and operations Contract purchases älong-term agreements to buy a specified amount of a product. Pre-specified quality requirements & terms Spot purchases ämeet the immediate needs of a firm. ämost often made on a spot purchase basis in a large marketplace that includes many suppliers

Pure Types of Net Marketplaces

Net Marketplaces: E-distributors Independently owned intermediaries äoffer individual customers a single source from which to make spot purchases of indirect or MRO goods äoperate in a horizontal market that serves many different industries with products from many different suppliers

Net Marketplaces: E-procurement Independently owned intermediaries äconnecting hundreds of online suppliers to business firms who pay a fee to join the market Operate in a horizontal market – use long-term contractual purchasing agreements Provide value chain management services äautomation of a firm’s entire procurement process on the buyer side; automation of the selling processes on the seller side

Net Marketplaces: Exchanges Independently owned online marketplaces äconnect hundreds of suppliers to potentially thousands of buyers in a dynamic real-time environment Typically vertical markets in which spot purchases can be made for direct inputs (both goods and services) ämake money by charging a commission on each transaction

Net Marketplaces: Industry Consortia Industry-owned vertical markets where long-term contractual purchases of direct inputs can be made from a limited set of invited participants äServe to reduce supply chain inefficiencies by unifying the supply chain for an industry through a common network and computing platform

Pure Types of Net Marketplaces

Exercise Examine the Web site for one of the e-distributors in the previous slide Compare and contrast it with one of the Web sites listed for e-procurement or Exchanges If you were the manager of a medium-sized firm, from which of these three would you likely purchase your indirect inputs? Why?

Long-term Dynamics of Net Marketplaces Prototype Internet-based marketplace Several thousand created; however, most did not succeed -- did not attract enough players real value of B2B commerce will only be realized when it changes äthe entire procurement system, äsupply chain äcollaboration process among firms Industry consortia sprang up in 1999 and 2000 Industry consortia are profitable because: ächarge the large buyer firms transaction and subscription fees, but.. äbenefits more than offset the cost of membership

Net Marketplace Trend

Exercise Go to Examine the points about “products” and “resources” What advantages and disadvantages does covisint bring to industrial firms? To other net marketplaces?

Private Industrial Networks Dominate B2B commerce Web-enabled networks for coordinating trans-organizational business processes (collaborative commerce) Range in scope from a single firm to an entire industry – e.g., automobiles: äCovisint -- Created in 2000 by a consortium of DaimlerChrysler, Ford, and General Motors äIn the hotel industry Marriott, Hyatt, and three other major hotel chains formed a consortium to create Avendra Central purpose is to provide industry- wide global solutions to achieve the highest levels of efficiency Generally start with a single sponsoring company that “owns” the network Differentiates private industrial networks from consortia usually owned collectively by major firms through equity participation Transforming the supply chain by focusing on continuous business process coordination between companies Coordination includes product design, demand forecasting, asset management, and sales and marketing plans

Proctor & Gamble’s Private Industrial Network

Private Industrial Networks & Collaborative Commerce CPFR or industry collaborative resource planning, forecasting, and replenishment äworking with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities. ägoal is to ensure that retail and wholesale shelf space is precisely maintained Supply chain and distribution chain visibility äin the past impossible to know where excess capacity existed in a supply or distribution chain äEliminating excess inventories by halting production of overstocked goods can raise the profit margins for all network members because products will no longer need to be discounted in order to move them off the shelves

Private Industrial Networks & Collaborative Commerce Marketing and product design collaboration äcan be used to involve a firm’s suppliers in product design and marketing activities as well as the related activities of their supply and distribution chain partners äcan ensure that the parts used to build a product live up to the claims of the marketers Collaborative commerce application used in a private industrial network äcan also make possible closed loop marketing in which customer feedback will directly impact product design

An Industry-wide Private Industrial Network

Exercise Go to the following Web Sites Summarize what the site does and the value it creates for customers äAriba (ariba.com) äIBM Global Services ä (