Chapter 6 Public B2B Exchanges and Support Services

ITEC5611S. Kungpisdan 2 Outline B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 3 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 4 B2B Electronic Exchanges: An Overview public e-marketplaces (public exchanges) Trading venues open to all interested parties (sellers and buyers); usually run by third parties exchange –A many-to-many e-marketplace. Also known as e- marketplaces, e-markets, or trading exchanges market maker The third-party that operates an exchange (and in many cases, also owns the exchange)

ITEC5611S. Kungpisdan 5 Exhibit 6.1 Trading Communities Market

ITEC5611S. Kungpisdan 6 B2B Electronic Exchanges: An Overview Classification Of Exchanges vertical exchange An exchange whose members are in one industry or industry segment horizontal exchange An exchange that handles materials used by companies in different industries

ITEC5611S. Kungpisdan 7 Exhibit 6.2 Classification of B2B Exchanges Maintenance, Repair, and Operations (materials used in activities that support production) Purchases involving long-term contracts that usually are based on private negotiations btw sellers and buyers Purchases of goods and services as they are needed, usually at prevailing market prices

ITEC5611S. Kungpisdan 8 Dynamic Pricing dynamic pricing A rapid movement of prices over time, and possibly across customers, as a result of supply and demand Typical steps in dynamic pricing in most exchanges: 1.A company posts a bid to buy a product or an offer to sell one. 2.An auction is activated. 3.Buyers and sellers can see the bids and offers, but not see who is making them (anonymity) 4.Buyers and sellers interact with bids and offers in real time. 5.A deal is struck when there is an exact match btw a buyer and a seller on price, volume, and others variables e.g. location or quality. 6.Once the deal is done, payment and delivery are arranged.

ITEC5611S. Kungpisdan 9 B2B Electronic Exchanges: An Overview Functions of Exchanges 1.Matching buyers and sellers 2.Facilitating transactions 3.Maintaining exchange policies and infrastructure

ITEC5611S. Kungpisdan 10 RFP = Request for Proposal

ITEC5611S. Kungpisdan 11 B2B Electronic Exchanges: An Overview Revenue Models –Transaction fees Commission paid by sellers for each transaction they make However, cannot charge very high, need to find other revenue sources –Fee for service Some sellers prefer to pay service charges rather that transaction fees –Membership fees Annual or monthly fee to get some free services or discount –Advertising fees –Other revenue sources Auction fees, license fees for software usage

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ITEC5611S. Kungpisdan 13 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 14 Third-Party (Trading) Exchanges Third-party exchanges are characterized by two contradicting properties: –They are neutral, because they do not favor either sellers or buyers and –They do not have a built-in constituency of sellers or buyers, they sometimes have a problem attracting enough buyers and sellers to attain financial viability

ITEC5611S. Kungpisdan 15 Third-Party (Trading) Exchanges market liquidity The degree to which something can be bought or sold in a marketplace without affecting its price. –It is measured by the number of buyers and sellers in the market and the transaction volume Different from a portal, 3 rd party exchange not only presents catalogs, but also tries to match buyers and sellers and encourages them to make transactions by providing e- trading floors an rooms

ITEC5611S. Kungpisdan 16 Exhibit 6.6 Supplier Aggregation Model Need system integration between companies May be web-based

ITEC5611S. Kungpisdan 17 Exhibit 6.7 Buyer Aggregation Model

ITEC5611S. Kungpisdan 18 Third-Party (Trading) Exchanges Suitability of Third-Party Exchanges As in other types of e-marketplaces, the most important key to the success of any third-party exchange is the critical mass of buyers and sellers

ITEC5611S. Kungpisdan 19 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 20 Consortium Trading Exchanges consortium trading exchange (CTE) –A subset of 3 rd Party Exchange An exchange formed and operated by a group of major companies to provide industry-wide transaction services Markets operate in three basic types of environments that indicates the third-party exchange that is most appropriate –Fragmented markets: many buyers, many sellers Life sciences and food industries 3 rd Party Exchange –Seller-concentrated markets: few sellers, many buyers Plastics and transportation Consortia –Buyer-concentrated markets: few buyers, many sellers Automotive, airlines Consortia

ITEC5611S. Kungpisdan 21 Consortium Trading Exchanges CTEs are classified by: –Focus on buying or selling –Are vertical or horizontal The four types of consortia are: 1.Purchasing oriented, vertical 2.Purchasing oriented, horizontal 3.Selling oriented, vertical 4.Selling oriented, horizontal

ITEC5611S. Kungpisdan 22 Consortium Trading Exchanges Purchasing-Oriented (Procurement) Consortia –Most popular B2B consortium model –Vertical Purchasing-Oriented CTEs: the players are in the same industry –Horizontal Purchasing-Oriented CTEs: the owner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries – Selling-Oriented Consortia –Most of them are vertical –

ITEC5611S. Kungpisdan 23 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 24 Dynamic Trading: Matching and Auctions dynamic trading Exchange trading that occurs in situations when prices are being determined by supply and demand (e.g., in auctions) –Two major mechanisms: matching and auctions Matching—Buyers place their bids and sellers list their asking prices, the market makers conduct the matching Auctions—Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms

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ITEC5611S. Kungpisdan 26 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 27 Building and Integrating E-Marketplaces and Exchanges Building E-Marketplaces Building e-marketplaces and exchanges is a complex process. –It is usually performed by a major B2B software company e.g. Commerce One, Ariba, Orable, or IBM –Management consulting companies e.g. PWC, Gartner Group, or McKinsey –Technology companies e.g. IBM, Oracle, Intel, Microsoft, and SAP

ITEC5611S. Kungpisdan 28 Building and Integrating E-Marketplaces and Exchanges The Integration Issue –Seamless integration is needed between the third- party exchange and the participants’ front- and back-office systems is necessary –In private exchanges, one needs to integrate: Sell-side: seller’s computing system with that of the customers Buy-side: buyer’s system with that of the suppliers

ITEC5611S. Kungpisdan 29 Building and Integrating E-Marketplaces and Exchanges Four most common elements of B2B integration solutions 1.External communications Web/client access: web browser Data exchange, e.g. EDI over VANs and Internet-based EDI Direct application integration: require middleware Shared procedures 2.Process and Information Coordination Involves the coordination of external communications and internal information systems e.g. online sales transaction 3.Use of Web Services Enable different web-base systems to communicate with each other using Internet-based protocols 4.System and Information Management Management of software, hardware, and information

ITEC5611S. Kungpisdan 30 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 31 Support Services for E-Marketplaces and PRM Directory Services and Search Engines Directory services can help buyers and sellers manage the task of finding potential partners Partner and Supplier Relationship Management partner relationship management (PRM) Business strategy that focuses on providing comprehensive quality service to business partners Partners: customers, suppliers, joint ventures, service providers, etc supplier relationship management (SRM) A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses

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ITEC5611S. Kungpisdan 33 Exhibit 6.11 SRM from Peoplesoft See Exhibit W6.3 for more details

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ITEC5611S. Kungpisdan 35 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 36 B2B Implementation Issues Problems with Public Exchanges –Attracting sellers to public exchanges is difficult for these reasons: Transaction fees –Large suppliers do not want to pay transaction fees when they engage in transactions with their existing customers. Sharing information Cost savings –not much cost saving for low cost items Recruiting suppliers –Large supplier may have their own e-purchasing capabilities for their customers Too many exchanges –Competitors believe that they can do better job than first movers

ITEC5611S. Kungpisdan 37 B2B Implementation Issues Supply Chain Improvers –Public exchanges prepare the entire necessary infrastructure and ask suppliers to just “plug in” and start selling But company is also interested in streaming their internet supply chain, not just plugging in –Focusing on supply chain savings rather than on buy/sell savings can be very beneficial to exchanges

ITEC5611S. Kungpisdan 38 B2B Implementation Issues Problems with Private Exchanges –Private exchanges are usually run by one large company; trust becomes an issue

ITEC5611S. Kungpisdan 39 Roadmap B2B Electronic Exchanges Overview Third-party Exchanges Consortium Trading Exchanges Dynamic Trading Building and Integrating E-marketplaces Support Services for E-marketplaces and PRM B2B Implementation Issues Managing Exchanges

ITEC5611S. Kungpisdan 40 Managing Exchanges Centralized Management –Managing exchanges and providing services to participants on an individual basis is very expensive –So, “families” of jointly-managed exchanges are more cost- effective –One market maker can build and operate several exchanges from a unified, centralized location –Dealing with 3 rd -party vendors that provide logistic services and payment systems may be more efficient if a vendor is supplying services to many exchanges

ITEC5611S. Kungpisdan 41 Managing Exchanges Critical Success Factors for Exchanges –Early liquidity Liquidity requires having a sufficient number of participants and amount of transaction volume –The right owners or partners –The right governance Good management and effective operations Governance provides rules for the exchange, minimize conflicts, and supports decision making –Openness Must be open to all, from both organizational and technological perspectives Commitment to open standards –A full range of services

Questions? Next lecture: E-Supply Chain, Collaborative Commerce, Intrabusiness EC, and Corporate Portals