1. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Chapter 6 B2B Exchanges, Directories, and Other Support Services Jason C.H. Chen, Ph.D. Professor of MIS Graduate School of Business Gonzaga University Spokane, WA 99223 USA chen@jepson.gonzaga.edu

2. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Learning Objectives 1.Define exchanges and describe their major types. 2.Describe the various ownership and revenue models of exchanges. 3.Describe B2B portals. 4.Describe third-party exchanges. 5.Distinguish between purchasing (procurement) and selling consortia.

3. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Learning Objectives 6.Define dynamic trading and describe B2B auctions. 7.Describe partner relationship management (PRM). 8.Discuss integration issues of e-marketplaces and exchanges. 9.Discuss B2B networks. 10.Discuss issues in managing exchanges, including the critical success factors of exchanges.

4. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.1 B2B Electronic Exchanges— An Overview public e-marketplace (public exchange) A many-to-many e-marketplace. Trading venues open to all interested parties (sellers and buyers); usually run by third parties. Some are also known as trading exchanges market maker The third party that operates an exchange (and in many cases, also owns the exchange)

5. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Government Professional Association Universities Research Institutions Manufacturers Contractors Suppliers Subsuppliers Retailers Customers Dealers Content Providers Banks Financial Institutions Logistics Services IT Providers Other Exchanges Market Maker and Administrator Trading Community ( An Exchange ) Exhibit 6.1 The Community of an Exchange: Information Flow and Access to Information

6. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Exhibit 6.2 Classification of B2B Exchanges DirectIndirect (MRO) Systematic Sourcing Spot Sourcing (1) Vertical Distributors (3) Vertical Exchanges (2) Horizontal Distributors (4) Horizontal Exchanges employease.com Methods: Matching, dynamic pricing plastics.com epapertrade.com Methods: Aggregation, fixed/negotiated prices mro.com Methods: Aggregation, fixed/negotiated prices Isteelasia.com Chemconnect.com Methods: Matching, dynamic pricing long-term as needed

7. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges - An Overview Vertical exchange: An exchange whose members are in one industry or industry segment. It trades only in materials/services unique for that industry Horizontal exchanges: Exchanges that handle materials used by companies in different industries Dynamic pricing: N A rapid movement of prices over time, and possibly across customers, as a result of supply and demand

8. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.) The typical process that results 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 (forward or reverse) is activated 3.Buyers and sellers can see the bids and offers that usually remain anonymous 4.Buyers and sellers interact with bids and offers in real time Sometimes group purchasing is used to obtain a volume discount price 5.A deal is struck when there is an exact match between a buyer and a seller on price, volume, and other variables, such as location or quality 6.The deal is consummated, and payment and delivery are arranged

9. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.) Functions of Exchanges –Matching buyers and sellers –Facilitating transactions –Maintaining exchange policies and infrastructure

10. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Exhibit (Extra) Conventional Versus Exchange Processes Conventional Process Step 1 Step 3 Step 2 Step 1 Step 2 Buyer Request for proposal Supplier KBidding Bidding Sequence Repeated for k=1 to n Buyer Evaluate, negotiate, and accept Notify supplier Proposal Evaluation and Acceptance Buyers Good shipped Payment Buyer Transaction Completion Exchange Process Exchange Buyer 1: RFP Buyer 3: RFP Buyer 2: RFP Supplier B Bid Supplier A Bid Supplier C Bid Supplier D Bid RFPs Submitted and Bids Made Source: Based on Brint.com. Copyright © by Brint Institute, LLC. All rights reserved. Payment Less Commission Selected Supplier Buyer 1: Payment Exchange Buyer 1 :Best Bid Logistics Services Best Bid Accepted

11. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce General Purchasing Process Supplier / Seller Buyer Request for Proposal/Quote (RFP/RFQ) Forecast Demand Bid Negotiate Contract Place Orders Process Orders Shipping Orders Receiving Orders Invoicing Payment Vender Performance Tracking & Management Customer Service

12. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.) Ownership of Exchanges –One company, usually an industry giant –A neutral entrepreneur (a ‘third-party’ intermediary) –The consortium (or “third-party” co-op) Governance and Organization –Membership –Site access and security –Services provided by exchanges

13. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.) Advantages of Exchanges –Making markets more efficient, providing opportunities for sellers and buyers to find new business partners –Cutting the administrative costs of ordering MROs –Expediting trading processes –Facilitating global trade –Creating communities of informed buyers and sellers

14. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.)

15. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.)

16. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Electronic Exchanges (cont.) Revenue models 1.Transaction fees 2.Fee for service 3.Membership fees 4.Advertising fees 5.Other revenue sources N

17. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.2 B2B Portals and Directories B2B Portals and Directories B2B portals: : B2B portals that focus on a single industry or industry segment; “vertical portals” Pure information portals include: –directories of products offered by each seller –lists of buyers and what they want –other industry or general information Vortals Information portals for businesses

18. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Portals and Directories Directory Services and Search Engines –Directory services can help buyers and sellers manage the task of finding specialized products, services, and potential partners –Specialized search engines are becoming a necessity in many industries due to the information glut

19. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Portal Examples (cont.) Alibaba.com—started as a pure information portal and is moving toward becoming a trading exchange –Huge database is a horizontal information portal with offerings in a wide variety of product categories –Reverse auctions (sellers bid) –Features–free email, email alerts, legal information, etc. –Revenue model—advertisement and fees for special services

20. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.3 Third-Party and Directory Exchanges Third-party exchanges are characterized by two contradicting properties –They are neutral because they do not favor either sellers or buyers –Because 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

21. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Third Party (Trading) Exchanges (cont.) A major problem is: –How to increase their financial viability –Market liquidity: The degree to which something can be bought or sold in a marketplace without affecting its price Solution – N Team up with with partners such as large sellers or buyers, financial institutions

22. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce #1 #2 #3 #4 Aggregation of Catalogs (Commerce One) Hosting Workflow applications SME1 SME2 SME3 etc. Workflow, Approvals, Budget controls Buyer #1 ERP, SCM Integration Large Buyers Exhibit 6.6 Supplier Aggregation Model - Third Party (Trading) Exchanges Small Buyers (SMEs) Suppliers GPO

23. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Third Party (Trading) Exchanges (cont.) Buyer aggregation model buyers’ RFQs are aggregated and then linked to a pool of suppliers that are automatically notified of the RFQs (see next slide) Suitability –aggregation models work best with MROs and services that are well defined, that have stable prices, and where the supplier or buyer base is fragmented N

24. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce #1 #2 #3 etc. #1 #2 #3 etc. BuyersSuppliers RFQ Suppliers’ offers Bids Buyers’ requests Exhibit 6.7 Buyer Aggregation Model - Third Party (Trading) Exchanges Requests Response Aggregating RFQs from Suppliers; collecting RFPs from bidders, matching (selecting offers) GPO

25. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Group Purchasing Organization Process RFQ Forecast Demand Negotiate Contract Place Orders Shipping Orders Invoicing VPTM RFQ Process Orders Receiving Orders Bid Payment [Stage3] VPTM : Vender Performance Tracking & Management Returns Refund Process GPOGPO [Stage1-a] RFQ [Stage2] [Stage4] Shipping / Receiving Orders Refund Process Returns Payment Invoice Shipping / Receiving Orders ……... BuyerBuyer S u p p S l i e e e r r / l l [Stage1-b] Response Confirm (Price OK)

26. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Third-Party and Directory Exchanges market liquidity The degree to which something can be bought or sold in a marketplace without significantly affecting its price. It is determined by the number of buyers and sellers in the market and the transaction volume

27. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce BREAK-1 Application Case 6.2: Global Transportation Network Ocean Portal (p.272)

28. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.4 Consortium Trading Exchanges Consortium trading exchange (CTE): 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: 1.Fragmented markets 2.Seller-concentrated markets 3.Buyer-concentrated markets N

29. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Consortium Trading Exchanges (cont.) CTEs, defined by two main criteria: –whether they focus on buying or selling –whether they are vertical or horizontal 4 types of CTEs 1.Purchasing oriented, vertical 2.Purchasing oriented, horizontal 3.Selling oriented, vertical 4.Selling oriented, horizontal P S V H 1 2 3 4

30. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Consortium Trading Exchanges (cont.) Purchasing-oriented (procurement) consortia –Vertical Purchasing-Oriented CTEs all the players are in the same industry –Horizontal Purchasing-Oriented CTEs owner-operators are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries N

31. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Consortium Trading Exchanges (cont.) Selling-oriented consortia – Selling-oriented consortia are less common than buying-oriented ones. –Most selling-oriented consortia are vertical –Participating sellers have thousands of potential buyers within a particular industry

32. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Consortium Trading Exchanges (cont.) Other issues for consortia –Legal challenges for B2B consortia level of collaboration among both competitors and business partners antitrust and other competition laws must be considered – Critical success factors for consortia Appropriate business and revenue models Size of the industry Ability to drive user adoption

33. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Consortium Trading Exchanges (cont.) Elasticity Standardization of commodity-like products Management of intensive information flow (collaboration) Smoothing of supply chain inefficiencies –Combining consortia and third-party exchanges dot-consortia - large consortia + third-party owner combination may bring about the advantage of both ownership and minimizing third-party limitations such as low liquidity N The measure of the incremental spending by buyers as a result of the savings generated

34. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.5 Dynamic Trading: Matching and Auctions dynamic trading Trading that occurs in situations when prices are changing continuously, being determined by supply and demand (e.g., in auctions)

35. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Dynamic Trading: Matching and Auctions Matching –The matching process may be more complex than buying and selling in regular auctions due to the need to match both prices and quantities, and many cases, quality, delivery times, and locations Auctions –An exchange may offer auction services as one of its many activities –An exchange is fully dedicated to auctions

36. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B portals B2B dynamic exchange B2B catalog- based exchanges A place for selling and buying Fix prices ( updated as needed) Search tools Trading information Community services, news, information Communication tools Classified ads Employment Markets May support selling (buying) Fixed prices M ay do auctions Matches buyer/seller other at dynamic prices, auctions Provides trading-related information and services (payment, logistics) Highly related May provide general information, news, etc. May provide for negotiations Vertical, horizontal Shopping directory, usually with hyperlinks (only) Shopping carts with services (payment, etc.) Vertical (vortals), horizontal Shopping directory, usually with hyperlinks Vertical, horizontal Forward auctions Reverse auctions Bid/ask exchanges EXHIBIT 6.9 Comparing the Major B2B Many-to-many Models TypesMajor Characteristics Name Dynamic Trading: Matching and Auctions

37. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.6 Partner and Supplier Relationship Management partner relationship management (PRM) Business strategy that focuses on providing comprehensive quality service to business partners supplier relationship management (SRM) A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses

38. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Partner and Supplier Relationship Management Note: PeopleSoft is now owned by Oracle

39. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce The Wal-Mart Supply Chain 1-a 1-b 1-c 2-a 2-b 3-a 3-b 4

40. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Partner and Supplier Relationship Management E-Communities and PRM –B2B applications involve many participants: buyers and sellers, service providers, industry associations, and others, which creates a community –E-communities connect personnel, partners, customers, and any combination of the three –E-communities offer a powerful resource for e- businesses to leverage online discussions and interaction in order to maximize innovation and responsiveness

41. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.7 Building and Integrating E-Marketplaces and Exchanges Building E-Marketplaces –Building e-marketplaces is a complex process –usually performed by a major B2B software company Commerce One Ariba Oracle IBM

42. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Building and Integrating E-Marketplaces and Exchanges Integration issue –Seamless integration is needed between the third-party exchange and the participants’ front and back-office systems –In private exchanges the seller’s computing system must be integrated with the customers systems Web-based Systems

43. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Four most common elements of B2B Integration Solutions 1.External communications Web/client access Data exchange Direct application integration Shared procedures 2.Process and information coordination in integration how to coordinate external communications with internal information systems N

44. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Four most common elements of B2B Integration Solutions (cont.) 3.Use of Web services in integration Web Services enable different Web-based systems to communicate with each other using Internet-based protocols such as XML 4.System and information management in integration management of software, hardware, and several information components, including partner-profile information, data and process definitions, communications and security settings, and users’ information N

45. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.8 B2B Networks Private Marketplaces – E-marketplaces that are owned and operated by one company. Also known as company-centric marketplaces

46. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.8 B2B Networks Characteristics of Company-Centered (Private) Networks –Provide the infrastructure for e-marketplaces –Allow suppliers to communicate effectively and efficiently with sub-suppliers along several tiers –Increase the visibility of buyers, sellers, and other partners along the supply chain and around the globe –Operate on a large scale –Foster collaboration and closer relationships among business partners –Enable industry-wide resource planning –Provide support services, especially financial ones for the benefit of trading partners –Provide insurance, financial derivatives, and so on to reduce risks in certain markets e.g., Boeing’s PART – connects Boeing’s customers to Boeing and Boeing’s parts suppliers.

47. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Networks –Boeing’s Example B2B intermediary: Boeing’s parts marketplace –World’s largest maker of airplanes for commercial and military customers –Major goal of Boeing’s intermediary parts market, called PART is supporting customers’ maintenance needs as a customer service –Online strategy is to provide a single point of online access through which airlines (buyers) and the maintenance and parts providers (suppliers) can access data about the parts they need –Began using traditional EDI

48. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Networks –Boeing’s Example (cont.) –1996, Boeing introduced its PART page on the Internet –Customers around the world could check parts availability and pricing order parts track order status –Less than a year later, about 50 percent of Boeing’s customers used PART for parts orders and customer service inquiries

49. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Networks –Boeing’s Example (cont.) –Boeing OnLine Data (BOLD) enables mechanics and technicians at the airport to access the technical manuals they need for repairs –These manuals are now available in digital form, and mechanics and technicians can access them via wireline or wireless devices

50. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Networks Public Industrywide (Vertical) Networks Transindustry And Global Networks –Networks of exchanges (E2E) –Global networks

51. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce B2B Networks

52. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.9 Other B2B Implementation Issues Problems with public exchanges 1. : required to pay transaction fees with existing customers 2. : do not want to share business data with competitors 3. : not great enough to attract buyers 4.Recruiting suppliers: lose direct contact with customers 5.Too many exchanges N Transaction fees Sharing information Cost savings

53. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Other B2B Implementation Issues Supply chain improvers –Companies want to streamline their internal supply chains, which requires integration with internal operations instead of “plugging in” to an exchange’s infrastructure Problems with private exchanges –Major problem is in the (one) large corporation running the exchange trust

54. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Other B2B Implementation Issues Software Agents in B2B Exchanges –Software agents provide an efficient infrastructure to provide real-time, tighter integration between buyers and sellers and to facilitate management of multiple trading partners and their transactions across multiple virtual industry exchanges Disintermediation and Reintermediation

55. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Value-added Services Once a critical mass is reached, exchanged operators must expand the services they provide to users. Value-added services can make an exchange even more compelling: –Industry news, expert advice –Auctions, financial services –Business reporting, data mining –Detailed specification sheets

56. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce 6.10 Managing and the Future of Exchanges Evaluating Exchanges Centralized Management Critical Success Factors for Exchanges 1.Early liquidity 2.The right owners 3.The right governance 4.Openness 5.A full range of services

57. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Managing and the Future of Exchanges New Directions for B2B Marketplaces –Critical success factors for exchanges Importance of domain expertise Targeting inefficient industry processes Targeting the right industries Brand building Exploiting economies of scope Choice of business/revenue models Blending content, community, and commerce Managing channel conflict Maximize the benefits for all participants Other factors

58. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Managerial Issues 1.Have we done our homework? 2.Can we use the Internet? 3.Which exchange to join? 4.Will joining an exchange force restructuring? 5.Will we face channel conflicts? 6.What are the benefits and risks of joining an exchange? 7.Can we trust new trading partners?

59. Dr. Chen, Electronic Commerce  Pearson/Prentice Hall & Dr. Chen, Electronic Commerce BREAK-2 Application Case 6.3: Asite’ B2B E- Marketplace for the Construction Industry (p.289)