1. IMS 6485: B2B Commerce 1 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Topics The Market Space and Size ($12 trillion) Themes The Costs of Procurement The Procurement Market Trends in Response to Procurement Costs Types of Net Marketplaces Private Industrial Networks Technologies Cases

2. IMS 6485: B2B Commerce 2 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Where is B2B Commerce on the Value Chain? Pretty much the whole thing

3. IMS 6485: B2B Commerce 3 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Market Space B2B Commerce is $12 trillion in a $13.2 trillion economy Not strictly additive –B2B feeds all final sectors Retail Services Government But a big market all the same!!! Q: Do you see any reason why governments cannot participate in B2B-type markets?

4. IMS 6485: B2B Commerce 4 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Market Space (cont.) In 2005 the amount of e-B2B eCommerce was only $1.5 trillion of the $10 trillion total By 2008 this was $3.8 trillion of $13.2 trillion total B2B How is the other $9.4 trillion conducted? –And why has this portion not moved into the electronic arena? Growth in e-B2B expected to reach $6.3 trillion by 2012 –But the 3 rd edition of the text (2007) estimated $9 trillion by 2009

5. IMS 6485: B2B Commerce 5 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Value Proposition (so to speak) Business spend a lot of money conducting business with each other –Estimate that PO for support products (not direct inputs) costs $100 each to process –GE alone saved $900 million annually in procurement costs by automating B2B purchasing If even a portion of inter-firm trade could be automated, …, then literally trillions of dollars might be released for more productive uses, consumer prices potentially would fall, productivity would increase, and the economic wealth of the nation would expand" (p. 770)

6. IMS 6485: B2B Commerce 6 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Themes We will look at several B2B market mechanisms For each, determine –Ownership –Bias (Buyer, Seller, Neutral) –Economic arguments for participation by each party –Tradeoffs parties make to participate –Enabling investments needed by each party –Viability of the mechanism

7. IMS 6485: B2B Commerce 7 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Themes (cont.) Look for the relative importance in each mechanism of achieving –Cost savings through process efficiencies –Price savings through increased competition –Price savings through decreased competition Look for the importance of network externalities Restructuring market relationships, including –Giving up control for longer term commitments –Sharing proprietary information

8. IMS 6485: B2B Commerce 8 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Why is B2B Purchasing so Expensive? Custom products with engineering specifications Delivery and availability critical to production processes –Severe consequences of supplier not performing High volume –Makes opportunities for savings more important –Makes control of spending more important –Requires more effort to track status of individual actions Many more steps in the procurement, delivery, invoicing, payment, and accounting processes

9. IMS 6485: B2B Commerce 9 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Why is B2B Purchasing so Expensive (cont.)? Life cycle of a procurement is longer Volume and life cycle introduces uncertainty –Price changes during life cycle –Downstream demand shock –Upstream supply shock (e.g., gasoline prices) Greater uncertainty typically requires more complicated contract terms –Expensive to negotiate Look for ways that B2B eCommerce systems address these costs

10. IMS 6485: B2B Commerce 10 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Why is B2B Purchasing so Expensive (cont.)? Review the steps in Figure 12.3 –Search for products –Qualify vendors (technical ability, reliability, solvency) –Negotiate price, delivery, quality, payment –Purchase Order to vendor –Invoice –Ship –Pay –Receive payment Buyer Seller

11. IMS 6485: B2B Commerce 11 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Why is B2B Purchasing so Expensive (cont.)? The corporate purchasing experience requires extensive data entry in each firm's internal systems –These systems may not be integrated (even within the same firm) –Sales, inventory, and production may be managed by separate systems requiring redundant data storage (and sometimes entry) These are the issues ERP systems are intended to address –A large purchase from a supplier may trigger a round of purchases from suppliers even further up the value chain

12. IMS 6485: B2B Commerce 12 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Why is B2B Purchasing so Expensive (cont.)? The U.S. Census Bureau reports in 2005 that over 3 million American workers work in the procurement process 3 rd Edition

13. IMS 6485: B2B Commerce 13 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Procurement Market—Subdivide by Type Type of product –Direct goods—used in production as raw materials or enablers (e.g., fuel) –Indirect goods/MRO—not used in production (e.g. office supplies, repair parts, etc.) How purchased –Contract—longer term –Spot—immediate purchase 80% of B2B is contract purchase of direct goods 20% is spot purchase of indirect goods

14. IMS 6485: B2B Commerce 14 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends in Response to Procurement Expense The total cost of procurement consists of two components –Purchase price of goods and services –Costs of managing the procurement process (previous discussions) Many firms have come to believe: –The costs of negotiating incremental price discounts from competitive suppliers aren't worth the benefit –The biggest area for savings is from reducing the cost of procurement management Watch for these trends

15. IMS 6485: B2B Commerce 15 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU B2B e-Commerce Benefits Lower administrative costs Lower search costs for buyers Reduce inventory costs –Increased competition → lower prices –Reduce inventory buffer levels Lower transaction costs through efficiency Increase production flexibility through JIT delivery Improve product quality through increased supply chain cooperation

16. IMS 6485: B2B Commerce 16 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU B2B e-Commerce Benefits (cont.) Decrease product cycle time by sharing designs and production schedules with suppliers Increase collaboration with suppliers and distributors –(How is this beneficial?) Create greater price transparency –(Whose prices are transparent and to who?) –(How is this beneficial?) Strategic advantages –First mover achieving cost benefits

17. IMS 6485: B2B Commerce 17 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends in Response to Procurement Expense (cont.) Four trends emerged in response to trends in procurement expense –Supply Chain Simplification –Electronic Data Interchange (EDI) –Supply Chain Management Systems –Collaborative Commerce These changes preceded Web-enabled B2B eCommerce But watch for their impact as drivers of modern B2B eCommerce systems Changing attitudes arising concurrently with technological capabilities

18. IMS 6485: B2B Commerce 18 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends—Supply Chain Simplification Refers to eschewing the competitive market for longer term relationships with a smaller number of suppliers Preferring stability and trust in a proven partner to seeking marginal price improvements Stability and proven track records important in JIT inventory management systems What are benefits to each party?

19. IMS 6485: B2B Commerce 19 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends—Electronic Data Interchange Back in the 1970s some systems allowed purchasers to directly enter orders into supplier order entry systems –Baxter and American Hospital Supply created ordering systems for hospitals –Allowed terminal based modem connection to seller system –Also provided simple inventory management and analysis services What were the advantages to each party in this transaction? The bias? The investments?

20. IMS 6485: B2B Commerce 20 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends—Electronic Data Interchange (cont.) EDI has developed, including using the Web as a networking mechanism –Eliminates one or more layers of paperwork –Exposing portions of the buyer's inventory and production data and plans to suppliers Suppliers automatically produce and ship –Ties trading partners together –Not suited for open procurement (any supplier may participate) –Many large buyers require suppliers to participate in order to sell (Seller biased)

21. IMS 6485: B2B Commerce 21 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends—Supply Chain Management SCM exposes much more of the supply chain to each participant –Suppliers expose internal production and inventory information to buyer –Buyer exposes downstream demand information to suppliers –Goal is to enable more planning by each party

22. IMS 6485: B2B Commerce 22 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Trends—Collaborative Commerce Couples value chain partners through more of the product life cycle –Component producers may collaborate in product design instead of accepting component specifications as a given requirement to be met –May coordinate in production planning –Previously proprietary information must be exposed to partners –Adversarial relationships are relaxed

23. IMS 6485: B2B Commerce 23 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Types of B2B Marketplaces Net Marketplaces –eDistributor –Independent Exchanges –eProcurement –Industry Consortia Private Industrial Networks

24. IMS 6485: B2B Commerce 24 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Net Marketplaces—eDistributors Catalog-based sellers of goods –Purchase from multiple sources –Sell to multiple buyers –Tend to focus on indirect goods –Tend to operate in spot markets Look at http://www.grainger.comhttp://www.grainger.com What is bias of these marketplaces? Who benefits and how?

25. IMS 6485: B2B Commerce 25 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Net Marketplaces--eProcurement A single point of sale for multiple suppliers and single point of purchase for multiple buyers –Do not directly own or sell inventory –May expose competing goods from many suppliers –Assist suppliers with catalog creation and management What is bias Who benefits and how?

26. IMS 6485: B2B Commerce 26 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Net Marketplaces—Exchanges Essentially portals that expose buyers and sellers to each other –Did not manage their own catalogs but exposed supplier information to buyers –Tended to operate in single industry environments –Biased to buyers (why) –Sellers did not like them and often refused to participate –Most of 1,000 or so start-up exchanges failed

27. IMS 6485: B2B Commerce 27 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Net Marketplaces—Industry Consortia Similar to exchanges but… –Owned by industry participants –Industry did not like exchanges encroaching on their industries –Sellers invited to participate—not open –Definitely biased to buyers –Some consortia have expanded role into standard setting and market coordination –Some major concerns about anti-competitive behavior (see discussion in text)

28. IMS 6485: B2B Commerce 28 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Private Industrial Networks EDI on Steroids A major participant (P&G, Wal Mart, etc.) builds systems that integrate the actions up and down the value chain (centered on the network owner) –Increases collaboration –Reduces transaction costs –Increases information flows –Supports collaborative commerce –Reduces inventory costs May require partner participation in a pretty blatant exercise of market power

29. IMS 6485: B2B Commerce 29 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Technologies The book has focused on business cases and general technological capabilities of various B2B systems What specific technology investments are needed by each party to operate in these systems? Which investments are likely to leverage off existing resources? –(And which existing commitments are likely to impede participation in new systems?)

30. IMS 6485: B2B Commerce 30 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Volkswagen Case VW made a specific decision to go it alone instead of joining an established industry procurement consortium What were the tradeoffs from this decision? VW achieved a $122 million cost reduction from the system –Is this a strategic advantage? –Do you think it is a sustainable advantage?

31. IMS 6485: B2B Commerce 31 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU RFID Technology Given the focus of this chapter—what is the advantage of RFID technologies? –(Why would the automotive industry spend $25 million on them?) What investments are needed to use RFID?

32. IMS 6485: B2B Commerce 32 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU The Wal Mart Case Wal Mart has 30,000 suppliers worldwide!!! Enough said Wal Mart's 2008 sales of $374 billion makes it the 28 th largest economy in the world (just ahead of Greece)

33. IMS 6485: B2B Commerce 33 Dr. Lawrence West, MIS Dept., University of Central Florida LWEST@BUS.UCF.EDU Siemens Case What choices did Siemens make? What benefits are they realizing? How are the benefits being realized? –What is the causality from a choice to a realized benefit?