1. Copyright © 2002 Pearson Education, Inc.

2. B2B E-commerce: Supply Chain Management and Collaborative Commerce
CHAPTER 12
B2B E-commerce: Supply Chain Management and Collaborative Commerce
Created by, David Zolzer, Northwestern State University—Louisiana
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3. Learning Objectives
Define B2B commerce and understand its scope and history
Understand the procurement process, the supply chain, and collaborative commerce
Identify the main types of B2B commerce: Net marketplaces and private industrial networks
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4. Learning Objectives Understand the four types of Net marketplaces
Identify the major trends in the development of Net marketplaces
Identify the role of private industrial networks in transforming the supply chain
Understand the role of private industrial networks in supporting collaborative commerce
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5. Defining the Growth of B2B Commerce
Total inter-firm trade is the total flow of value among firms
B2B commerce describes all types of computer-enabled inter-firm trade
Internet-based B2B commerce is that portion of B2B commerce that is enabled by the Internet
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6. The Evolution of B2B Commerce
Automated order entry systems involve the use of telephone modems to send digital orders
Seller-side solutions are seller-biased markets that are owned by, and show only goods from, a single seller
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7. The Evolution of B2B Commerce
Page 655, Figure 12.1
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8. The Evolution of B2B Commerce
Electronic Data Interchange (EDI) is a communications standard for sharing business documents and settlement information among a small number of firms
Buyer-side solutions are buyer-biased markets that are owned by buyers and aim to reduce the procurement costs of supplies for buyers
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9. Evolution of B2B Commerce
Hub-and-spoke system refers to systems like EDI with the buyers in the center and the suppliers connected to the central hub via private dedicated networks
A vertical market is one that provides expertise and products for a specific industry
Horizontal markets refer to markets that serve many different industries
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10. Evolution of B2B Commerce
B2B electronic storefronts are simply online catalogs of products made available to the public marketplace by a single supplier
Net marketplaces bring hundreds of suppliers into a single Internet-based environment to conduct trade
Private industrial networks are Internet-based communication environments that extend far beyond procurement to encompass truly collaborative commerce
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11. The Growth of B2B Commerce
Page 657, Figure 12.2
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12. Industry Forecasts for Internet-Based B2B Commerce
Page 659, Figure 12.3
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13. Potential Benefits of B2B E-Commerce
Lower administration costs
Lower search costs for buyers
Reduce inventory costs by increasing competition among suppliers and reducing inventory to the bare minimum
Lower transaction costs by eliminating paperwork and automating parts of the procurement process
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14. Potential Benefits of B2B E-Commerce
Increase production flexibility by ensuring delivery of parts “just in time”
Improve quality of products by increasing cooperation among buyers and sellers and reducing quality issues
Decrease product cycle time by sharing designs and production schedules with suppliers
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15. Potential Benefits of B2B E-Commerce
Increase opportunities for collaborating with suppliers and distributors
Create greater price transparency -- the ability to see the actual buy and sell prices in a market
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16. Procurement Process
The way business firms purchase the goods they need in order to produce the goods they will ultimately sell consumers
Firms purchase goods from a set of suppliers who in turn purchase their inputs from a set of suppliers
These firms are linked in a series of connected transactions
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17. Supply Chain
The series of transactions that links sets of firms that do business with each other
It includes not only the firms themselves but also the relationship between them and the processes that connect them
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18. Procurement Process: Seven Steps
Searching for suppliers for specific products
Qualifying the sellers and the products they sell
negotiating prices, credit terms, escrow requirements, and quality requirements
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19. Procurement Process: Seven Steps
Scheduling delivery
Issuing purchase orders
Sending invoices
Shipping the product
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20. The Procurement Process
Page 660, Figure 12.4
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21. Types of Procurement
Purchases of direct goods -- goods that are directly involved in the production process
Purchases of indirect goods -- goods needed to carry out the production process but that are not directly involved in creating the end product. Often called MRO goods -- maintenance, repair, and operations
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22. Types of Procurement
Contract purchases -- long-term agreements to buy a specified amount of a product. There are pre-specified quality requirements and pre-specified terms
Spot purchases -- for goods that meet the immediate needs of a firm. Indirect purchases are most often made on a spot purchase basis in a large marketplace that includes many suppliers
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23. Direct Labor Involvement in the Procurement Process
Page 662, Table 12.1
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24. Multi-tier Supply Chains
The complex series of transaction that exists between a single firm with multiple primary suppliers, the secondary suppliers who do business with those primary suppliers, and the tertiary suppliers who do business with the secondary suppliers
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25. The Multi-tier Supply Chain
Page 663, Figure 12.5
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26. Roles of Existing Legacy Computer Systems
Legacy computer systems refer to generally older mainframe and minicomputer systems used to manage key business processes within a firm in a variety of functional areas
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27. Typical Legacy Systems
Materials Requirements Planning (MRP) systems enable companies to predict, track, and manage all the constituent parts of complex manufactured goods
Enterprise Resource Planning (ERP) systems are more sophisticated MRP systems that include human resource and financial components
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28. Trends in Supply Chain Management
Supply chain management (SCM) refers to a wide variety of activities that firms and industries use to coordinate the key players in their procurement process
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29. Trends in Supply Chain Management
Four major developments is supply chain management set the ground rules for understanding B2B e-commerce
Supply Chain Simplification
Electronic Data Interchange (EDI)
Supply Chain Management Systems
Collaborative commerce
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30. Supply Chain Simplification
The reduction of the size of a firm’s supply chain
Firms work closely with a strategic group of suppliers to reduce product costs and administrative costs
Long term contract purchases containing pre-specified product quality requirements and pre-specified timing goals
Shown to improve end product quality and ensure uninterrupted production
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31. Electronic Data Interchange
Developed to reduce cost, delays, and errors inherent in the manual exchanges of documents such as purchase orders, shipping documents, price lists, payments, and customer data
EDI differs from unstructured message because its messages are organized with distinct field for each of the important pieces of information
EDI industry committees define the structure and information fields of electronic documents for that industry
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32. The Evolution of EDI as a B2B Medium
Page 666,
Figure 12.6
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33. Supply Chain Management Systems
Coordinate and link the activities of suppliers, shippers, and order entry systems to automate the order entry process from start to finish, including the purchase, production, and moving of a product from a supplier to a purchasing firm
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34. Supply Management Systems
Page 668, Figure 12.7
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35. Collaborative Commerce
The use of digital technologies to permit organizations to collaboratively design, develop, build, and manage products through their life cycles
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36. Elements of a Collaborative Commerce System
Page 672, Figure 12.8
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37. Main Types of Internet-based B2B Commerce
Net Marketplaces (also referred to as exchanges or hubs) assemble thousand of sellers and buyers in a single digital marketplace on the Internet
They can be owned be either the buyer or the seller
They can operate as independent intermediaries between the buyer and seller
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38. Main Types of Internet-based B2B Commerce
Private industrial networks bring together a small number of strategic business partners who collaborate with one another to develop highly efficient supply chains and to satisfy customer demand for product
They are by far the largest form of B2B commerce, presently comprising 93% of the total computer-assisted inter-firm trade
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39. Two Main Type of Internet-based B2B Commerce
Page 673, Figure 12.9
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40. Projected Relative Size of Net Marketplaces and Private Industrial Networks
Page 675, Figure 12.10
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41. Other Characteristics of Net Marketplaces
Page 675, Table 12.2
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42. Pure Types of Net Marketplaces
Page 676, Figure 12.11
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43. Net Marketplaces: E-distributors
Independently owned intermediaries that offer individual customers a single source from which to make spot purchases of indirect or MRO goods
Operate in a horizontal market that serves many different industries with products from many different suppliers
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44. E-Distributors Page 677, Figure 12.12
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45. Net Marketplaces: E-procurement
Independently owned intermediaries connecting hundreds of online suppliers offering millions of MRO goods to business firms who pay a fee to join the market
Operate in a horizontal market in which long-term contractual purchasing agreements are used to buy indirect goods
Provide value chain management services -- include the automation of a firm’s entire procurement process on the buyer side and the automation of the selling business processes on the seller side
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46. E-procurement Markets
Page 679, Figure 12.13
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47. E-commerce in Action: Ariba
Ariba provides and excellent example of an e-procurement Net marketplace
Ariba is a leading B2B software platform and software provider
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48. E-commerce in Action: Ariba
Platform has four components:
Ariba Buyer automates the procurement business process within single firms
Ariba Marketplace and Ariba Dynamic Trade are software tools that permit users to establish B2B marketplaces internally on their corporate intranets, or externally on the public Internet
Ariba Commerce Services Network is an Internet-based e-procurement Net marketplace that aggregates catalogs of hundreds of suppliers and provides corporate buyers with a Web interface to Ariba procurement, payment, and shipping support services
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49. Ariba’s E-distribution & Procurement Net Marketplace
Page 680, 12.14
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50. Ariba’s Balance Sheet Page 684, Table 12.3
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51. Net Marketplaces: Exchanges
Independently owned online marketplaces that connect 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)
Make money by charging a commission on each transaction
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52. Exchanges
Page 688, Figure 12.15
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53. Some Exchanges Page 689, Table 12.4
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54. E-commerce in Action: FreeMarket Inc.
One of the leading B2B exchanges, generating revenues of $83 million in 2000
Market-making services enable industrial buyers of direct goods to find, screen, and qualify suppliers, and then to negotiate prices and term through a dynamic, real-time, comprehensive bidding and auction process
Offers proprietary technology, technical support facilities, market-making services, and access to a global database of suppliers
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55. FreeMarkets’ Balance Sheet
Page 693, Table 12.5
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56. 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
Serve to reduce supply chain inefficiencies by unifying the supply chain for an industry through a common network and computing platform
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57. Industry Consortia Page 697, Figure 12.16
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58. Industry Consortia by Industry
Page 698, Table 12.6
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59. Market Mechanisms Used by Industry Consortia
Page 699, Figure 12.17
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60. Long-term Dynamics of Net Marketplaces
Independent exchanges were the prototype Internet-based marketplace
Several thousand created; however, most of them did not succeed
Main reason for failure is that they did not attract enough players to achieve liquidity
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61. Long-term Dynamics of Net Marketplaces
Industry consortia sprang up in 1999 and 200 in reaction to earlier development of independently owned exchanges that were viewed by large industries as interlopers who would not directly serve their needs
Industry consortia are profitable because they charge the large buyer firms transaction and subscription fees, but rationalization of the procurement process, the competition among vendors, and the closer relationship with the vendors are benefits that more than offset the cost of membership
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62. Long-term Dynamics of Net Marketplaces
The failure of early exchanges is one Net marketplaces are changing so rapidly
Participants have come to realize the real value of B2B commerce will only be realized when it succeeds in changing the entire procurement system, supply chain, and the process of collaboration among firms
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63. Net Marketplace Trend Page 700, Figure 12.18
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64. 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
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
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65. Private Industrial Networks
Differentiates private industrial networks from consortia that are 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
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66. Proctor & Gamble’s Private Industrial Network
Page 703, Figure 12.19
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67. Characteristics of Private Industrial Networks
Developing efficient purchase and selling business processes industry-wide
Developing industry-wide resource planning to supplement enterprise-wide resource planning
Creating increasing supply chain visibility -- knowing the inventory levels of buyers and sellers
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68. Characteristics of Private Industrial Networks
Achieving closer buyer-supplier relationships, including demand forecasting, communications, and conflict resolution
Operating on a global scale -- globalization
Reducing industry risk by preventing imbalances of supply and demand, including developing financial derivatives, insurance, and futures markets
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69. Private Industrial Networks & Collaborative Commerce
CPFR or industry collaborative resource planning, forecasting, and replenishment involves working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities.
Goal is to ensure that retail and wholesale shelf space is precisely maintained
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70. Private Industrial Networks & Collaborative Commerce
Supply chain and distribution chain visibility refers to the fact that in the past it was impossible to know where excess capacity existed in a supply or distribution chain
Eliminating 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
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71. Private Industrial Networks & Collaborative Commerce
Marketing and product design collaboration can 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
This can 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 can also make possible closed loop marketing in which customer feedback will directly impact product design
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72. Pieces of the Collaborative Commerce Puzzle
Page 705, Figure 12.20
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73. An Industry-wide Private Industrial Network
Page 709, Figure 12.21
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