chapter 6 public b2b exchanges
DESCRIPTION
Chapter 6 Public B2B Exchanges. Learning Objectives. List the various types of e-marketplaces Describe B2B portals Describe third-party exchanges Distinguish between e-procurement and e-selling consortia Describe the various ownership and revenue models of exchanges - PowerPoint PPT PresentationTRANSCRIPT
Prentice Hall, 2003 2
Learning Objectives
List the various types of e-marketplacesDescribe B2B portalsDescribe third-party exchangesDistinguish between e-procurement and e-selling consortiaDescribe the various ownership and revenue models of exchangesDescribe the support mechanisms offered by exchanges, including auctions
Prentice Hall, 2003 3
Learning Objectives (cont.)
Describe networks of exchanges and exchange managementDescribe the critical success factors of exchangesDiscuss implementation and development issues of e-marketplaces and exchangesDescribe the major support services of B2BDescribe the extranet and its role in supporting marketplaces and exchanges
Prentice Hall, 2003 4
ChemConnect:The World Chemical Exchange
The ProblemThousands of companies trade raw and partially processed chemicals and plastics dailyBefore the Internet the trading process was slow, fragmented, ineffective, costly As a result:
Buyers paid too muchSellers had high expensesIntermediaries were needed for to smooth the process
Prentice Hall, 2003 5
ChemConnect (cont.)
The SolutionProvides free membership in trading marketplaces and information portals
Public exchange floor for anonymous bidsCommodities floor for buying and exchangingCorporate trading rooms—private online auctions
Up-to-the-minute market informationLarge electronic catalogIndependent intermediary
Prentice Hall, 2003 6
ChemConnect (cont.)
The ResultsIn ChemConnect trading rooms companies can save up to 15% in just 30 minutes of reverse auctionChemConnect is growing rapidly, adding members and increasing trading volume each year
Prentice Hall, 2003 7
B2B Exchanges
Public e-marketplaces (public exchanges)—trading venues open to all interested parties (sellers and buyers) and usually run by third parties
Exchange—a many-to-many e-marketplace. Also known as e-marketplaces, e-markets, and trading exchanges
Prentice Hall, 2003 8
B2B Exchanges (cont.)
Market maker—the third-party that operates an exchange (and in many cases, also owns the exchange)Companies that use exchanges are pleased with them and plan to increase the number of exchanges they participate Traders expect to more than double the value of transactions that they do through the exchanges
Prentice Hall, 2003 10
Classifications of Exchanges
Systematic sourcing—purchasing done in long-term supplier-buyer relationshipsSpot sourcing—unplanned purchases made as the need arisesVertical exchange—an exchanges whose members are in one industry or industry segmentHorizontal exchange—an exchanges that handles materials traded in several different industries
Prentice Hall, 2003 12
B2B Exchanges
Dynamic pricingOwnership of exchangesGovernance Organization of exchangesGains and risks of B2B exchange participation
Prentice Hall, 2003 13
Dynamic Pricing
Dynamic pricing—a rapid movement of prices over time, and possibly across customers, as a result of supply and demand
Stock exchanges sometimes change minute by minute Auction prices vary all the time
Prentice Hall, 2003 14
Dynamic Pricing (cont.)
Typical process that results in dynamic pricing in most exchanges
1. A company lists a bid to buy a product or an offer to sell one
2. Buyers and sellers can see the bids and offers—anonymity is often a key ingredient of dynamic pricing
Prentice Hall, 2003 15
Dynamic Pricing (cont.)
3. Buyers and sellers interact in real time with their own bids and offers—join together to obtain a volume discount price (group purchasing)
4. 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
5. The deal is consummated, and payment and delivery are arranged
Prentice Hall, 2003 16
Ownership of Exchanges
An industry giant (IBM’s patent exchange delphian.com)A neutral entrepreneur—a third-party intermediary (ChemConnect.com)The consortia (or co-op)—several industry players set up an exchange (Covisint.com)
Prentice Hall, 2003 17
Governance
Exchanges governed by guidelines and rules
How the exchange operatesWhat the requirements are to join the exchangeWhat fees are involvedWhat rules need to be followed
Prentice Hall, 2003 18
Governance (cont.)
Security and privacy for documents Contract terms between an exchange and buyers/sellersAssurances that the exchange is fair
Prentice Hall, 2003 19
Organization of Exchanges
MembershipGenerate revenue
Transaction and other feesRegistration feesAnnual membership fees
qualification processdeposit may be requiredLimits set on how much each member can trade
Prentice Hall, 2003 20
Organization of Exchanges (cont.)
Site access and securityInformation should be carefully protected—competitors congregate in the same exchangePrevent illegal offers and bidsList of individuals who are authorized to represent the participating companies
Prentice Hall, 2003 23
B2B Portals
B2B portals—information portals for businesses
Thomas register—facilitates business transactions for MROsAlibaba.com
DatabaseReverse auctionsFeatures and ServicesRevenue model
Vortals--B2B portals that focus on a single industry or industry segment; “vertical portals”
Prentice Hall, 2003 24
Third-Party (Trading) Exchanges
Electronic intermediariesDo not favor either sellers or buyers—neutralwithout a built-in constituency of sellers or buyers they have a problem attracting enough buyers and sellers to attain financial viability
Liquidity—the result of having a sufficient number of participants in the marketplace as well as a sufficient transaction volume
Prentice Hall, 2003 27
Suitability of Third-Party Exchanges
Fragmented marketsMarkets that have large numbers of both buyers and sellersMainly suitable for MROs
Buyer-concentrated markets—several large companies sell to a very large number of buyersSeller-concentrated markets—several large companies do most of the buying from a large number of suppliers
Prentice Hall, 2003 28
Consortium Trading Exchanges (CTE)
CTE (consortium)—an exchange formed and operated by a group of major companies to provide industry-wide transaction services
Vertical, purchasing-orientedHorizontal, purchasing-orientedVertical, selling-orientedHorizontal, selling-oriented
Prentice Hall, 2003 29
Purchasing-Oriented (Procurement) Consortia
E-Procurement Consortia can be:Vertical purchasing-oriented
All the players are in the same industry Support buying and selling
Horizontal purchasing-orientedOwner-operators are large companies from different industries Improving the supply chain
Prentice Hall, 2003 30
Covisint
Covisint—e-market of automotive industry
B2B integrated buy-side marketplaceGeneral MotorsFordDaimlerChrysler
Entire industry gainsLower costsEasier business practicesIncreased efficiency
Prentice Hall, 2003 31
Covisint (cont.)
“Co” stands forConnectivityCollaborationCommunication
“Vis” stands for visibility provided by the Internet“Int” stands for integrated solutions
Prentice Hall, 2003 32
Covisint (cont.)
Collaborative commerceFacilitate product designEnable procurement processProvide broad marketplace of buyers and suppliers
Vertical consortia trading exchangeFew large buyersMany sellers (suppliers to the industry)
Prentice Hall, 2003 33
Covisint (cont.)
Marketplace’s connectivity integrates buyers and sellers into a single network
Flow of information integrates buyers and sellers into a single networkVisibility provides real-time information for:
Fast decision makingCommunication throughout the supply chain, anywhere in the world
Prentice Hall, 2003 34
Covisint (cont.)
Web use allows changes to be sent simultaneously and instantly throughout its entire supply chainThe result:
Less need for costly inventory in the supply chainIncreased ability to respond quickly to market changes
Prentice Hall, 2003 35
Covisint (cont.)
One of the major objectives of the exchange is to facilitate product design:
Offers best-of-breed functionality Ability to integrate providers across the supply chain creates (collaborative commerce)Enables e-procurementProvides broad marketplace of buyers and suppliers Accesses a wealth of supply chain expertise and experience
Prentice Hall, 2003 36
Consortium Trade Exchanges
Selling-oriented consortiaVertical exchanges Thousands of potential buyers within a particular industry
Legal challenges for B2B consortiaExchanges introduce a level of collaboration among both competitors and business partnersAntitrust and other competition laws must be considered
Prentice Hall, 2003 37
Critical Success Factors of Consortia
Size of industryAbility to drive user adoptionElasticity—measure of incremental spending by buyers as a result of savings generatedStandardization of commodity-like productsManagement of intensive information flowSmoothing inefficiencies in supply chain
Prentice Hall, 2003 38
Dynamic Trading
Dynamic trading—exchange trading that occurs in situations when prices are being determined by supply and demand (dynamic pricing)
Prentice Hall, 2003 39
Dynamic Trading:Auctions and Matching
MatchingMarket makers conduct matching supply and demand (e.g., stocks)More complex than auctions because they match:
PricesQuantitiesTimesLocations
Prentice Hall, 2003 40
Dynamic Trading:Auctions and Matching
AuctionsPrivate trading rooms—members conduct auctions at the exchangeAuction services may be one of the activitiesExchange may be fully dedicated to auctionsCan conduct many-to-many public auctions
Prentice Hall, 2003 41
New Entrant to the Dutch Flower Market: TFA
Dutch auction methodWere semi-automated
Buyers and sellers went to one location to see the flowersAuctioneer used a clock with a large hand set at a high price
Price dropped as the time ticked off on the clockUntil clock was stopped by pushing an order button
Quantity ordered was clarified over an intercom , Process continued until all of the flowers were sold
Prentice Hall, 2003 42
TFA (cont.)
TeleFlower Auction (TFA)—competing electronic auction enables its initiators to penetrate the Dutch flower market
Buyers bid on flowers via their PCsDesignated timesFrom any locationAuction clock shows on buyer’s PC screenClock stopped by pushing space bar Auctioneer completes sale by telephone
Prentice Hall, 2003 43
TFA (cont.)
Process is much quickerAfter-sale delivery is much faster—within half an hour after the sale
Major issue can be the quality of the flowers
Flowers are not physically visible to the buyers Large amount of relevant information is available
TFA quickly built a competitive advantage using IT
Prentice Hall, 2003 46
Building and Integrating Marketplaces and Exchanges
Step 1—Think aheadStep 2—PlanningStep 3—System analysis and designStep 4—Building the exchangeStep 5—Testing, installation, and operationStep 6—System evaluation and improvement
Prentice Hall, 2003 47
Building and Integrating Marketplaces and Exchanges (cont.)
IntegrationBetween 3rd-party exchange and back-office systems of participantsAcross multiple, incompatible exchanges
External communicationsWeb/client accessData exchangeDirect application integrationShared process
Prentice Hall, 2003 48
Building and Integrating Marketplaces and Exchanges (cont.)
Process and information coordination—how to coordinate external communications with internal information systems
External process Internal processData transformation Exception handling
System and information management—involves management of:
SoftwareHardwareInformation components
Prentice Hall, 2003 49
Managing Exchanges
Revenue modelsTransaction feesFee for serviceMembership feesAdvertisement fees
Networks of exchanges“First mover” primary objective is the acquisition of buyers and sellersIntegration with other companies or exchangesSome exchanges are beginning to integrate in order to better serve their customers
Prentice Hall, 2003 51
Managing Exchanges (cont.)
Centralized managementOne market builder builds and operate several exchanges
Manages all the exchanges ’catalogs, auction places, discussion forumsCentralizes: accounting, finance, human resources, IT services
Third-party vendors providing logistic services and payment systems are more efficient when supplying services for “families ” of exchanges
VerticalNet (verticalnet.com)Ventro (nexprise.com)
Prentice Hall, 2003 52
Critical Success Factors
Early liquidityBusiness’s chance of survival is best when liquidity (volume of business conducted) is achieved early
Right ownersPartner with companies that can bring liquidity to the exchangeBest owner may be intermediary that can push both buyers and sellers
Prentice Hall, 2003 53
Critical Success Factors (cont.)
Right governanceGood management and fair /effective operations and rules are criticalGovernance provides rules for the exchange, minimized conflicts, decision making support
OpennessExchanges must be open to all from organizational and technical point of viewOpen standards require universal commitment and agreement on the standards
Prentice Hall, 2003 54
Critical Success Factors (cont.)
Full range of servicesParticipants are attracted by an exchange that helps cut costsExchanges team up with banks, logistic services and IT companies to help
Importance of domain expertiseMarket makers need an in-depth understanding of:
The industryBusiness processes inherent in the industryKnowledge of industry structureGovernment and policy stipulations
Prentice Hall, 2003 55
Critical Success Factors (cont.)
Targeting inefficient industry processesContribute to increased costs and time delaysVertical exchanges can add value
Targeting right industriesLarge base of transactionsMany fragmented buyers and sellersHigh vendor and product search/comparison costsStrong pressure to cut expenses
Prentice Hall, 2003 56
Critical Success Factors (cont.)
Brand building is criticalIncrease switching costs by adding features and functionalityInvest in:
Gaining brand awarenessAttracting businesses to exchangeCustomer retention
Prentice Hall, 2003 57
Critical Success Factors (cont.)
Exploiting economics of scopeValue-added services make exchange compelling
Industry newsExpert adviceDetailed product specification sheets
Support servicesBanks and financial information providersIdentification supported by sophisticated digital certificate architecture
Prentice Hall, 2003 58
Critical Success Factors (cont.)
Garner diverse and multiple revenue streams
Software licensingAdvertisingSponsorship
Critical mass of users will garner more value-added services
Auction servicesFinancial servicesBusiness reportingData mining services
Choice of business/revenue models
Prentice Hall, 2003 59
Critical Success Factors (cont.)
Blending content, community, and commerce
Content and community perspective—stimulate trafficEC transaction perspective—creates higher level of customer “stickiness”
Managing channel conflictHostile phase as buyers interact directly with sellers (disintermediation of supply chain)Short-term revenues impacted by backlash from existing fulfillment channels result in price erosion affecting medium-term profitability
Prentice Hall, 2003 60
Communication Networks and Extranets for B2B
The Internet—a public, global communications network that provides direct connectivity to anyone over a local area network (LAN) via an Internet service provider (ISP) or directly via an ISP
Prentice Hall, 2003 61
Communication Networks and Extranets for B2B (cont.)
Intranets—a corporate LAN or wide area network (WAN) that uses Internet technology and is secured behind a company’s firewalls
Links various servers,clients,databases,and application programs within a companyLimited to information pertinent to the company
Prentice Hall, 2003 62
Communication Networks and Extranets for B2B (cont.)
Extranets—a network that uses a virtual private network (VPN) to link intranets in different locations over the Internet; an “extended intranet”
Provide secured connectivity between a corporation’s intranets and the intranets of its business partnersprotected environment of an extranet allowsAllows partners to securely collaborate and share information
Prentice Hall, 2003 63
Communication Networks and Extranets for B2B (cont.)
Virtual private network (VPN)—a network that creates tunnels of secured data flows, using cryptography and authorization algorithms, to provide secure transport of private communications over the public Internet
Prentice Hall, 2003 65
A Network Loaded with Extras: ANX
Automotive Network Exchange (ANX)—an infrastructure for B2B applications
Backed by General Motors, Ford, and Chrysler
Allows companies in the automotive market to:
Swap supply and manufacturing dataBuySellCollaborate
Prentice Hall, 2003 66
ANX (cont.)
Benefits of ANXOne-to-one and one-to-many connections
ProcurementCAD/CAM file transfersEDIE-mailGroup-ware
“Big Three” expect to save millions of dollars
Consolidating communications linksReduce order turn-around time
Prentice Hall, 2003 67
ANX (cont.)
A VPN for ANXMost visible B2B implementation of VPNs that run over the Internet Security—all participants must have tools compliant with (IP) security standards covering
AuthenticationEncryptionEncryption key management.
Prentice Hall, 2003 68
Categories of Extranet Benefits
1. Enhanced communications2. Productivity enhancements3. Business enhancements4. Cost reduction5. Information delivery
Prentice Hall, 2003 69
Implementation Issues
Problems with exchangesHigh transaction fees Sharing informationUnclear cost savings Recruiting suppliersToo many exchangesDifficult to coordinate supply chain process
Private exchanges—e-marketplaces that are owned and operated by an industry giant or a consortiumProblems with private exchanges
Lack of trustLiquidity is questionable
Prentice Hall, 2003 70
Implementation Issues (cont.)
Software agents in B2B exchangesDisintermediationEvaluating exchanges
How much will company really save and/or gain?Determine viability of the exchangeContracts and technology that lock into a long-term relationshipMembership—who sits on the board.Who provides payment, logistics, other services?
Prentice Hall, 2003 71
Support Services for B2B Exchanges
Directory services and search enginesPartner relationship managementOther services:
Trust services Digital photosTrademark and domain names Client matchingGlobal business communities Encryption sitesE-business rating sites Promotion programsWeb-research services
Prentice Hall, 2003 72
Managerial Issues
Have we “done our homework?”Can we use the Internet?Which exchange?Will joining an exchange force restructuring?Will we face channel conflicts?What are the benefits and risks of joining anexchange?
Prentice Hall, 2003 73
Summary
E-marketplaces and exchanges definedThe major types of e-marketplacesB2B portalsThird-party exchangesConsortium trading exchangesDynamic pricing and trading