e-commerce essential components and business model

7/27/2019 E-commerce Essential components and business model

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Business-to-Business

E-Commerce

Prepared by: LEL First Prepared on: 28-2-2005 Last Modified on:Quality checked by: Module Group

Copyright 2004 Asia Pacific Institute of Information Technology

Electronic Commerce


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Module Code and Module Title Title of Slides

Learning Outcomes

At the end of the lecture, you should be able to:

Describe basic concept of the procurement

process in businesses Identify differences between B2B E-

Commerce and B2C E-Commerce Describe the issues that are particular to B2B

E-Commerce Explain the use of RFID, EDI and VPN in

B2B E-Commerce


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OBJECTIVES

B2B definitions: purchasing, logistics, SCM. Direct versus indirect (MRO) procurement. Electronic data interchange (EDI), EDI

standards, and EDI networks Supply chain management (SCM) and how

businesses are using the Internet to improve it. Electronic marketplaces and portals that make

B2B transactions easier, more efficient, and lesscostly.


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DEFINITIONS

Procurement: Planning and managing all elements of the purchase process. Includes sourcing and purchasing.

Sourcing:

Identifying and qualifying suppliers of raw materials. Purchasing: Deciding what to buy, how much, lot sizes, price to pay, placing orders.

Logistics: Managing the inbound movement of raw materials and supplies, and

outbound movements of finished goods and services. Supply chain management:

Managing the end-to-end industry value chain from product design toraw materials procurement, manufacturing, and distribution.

May involve multiple trading partners (e.g. Tier 1 suppliers, etc.)


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TYPICAL PURCHASING PROCESS


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DIRECT VS. INDIRECT MATERIALS PURCHASING

Direct materials: Raw materials that are inputs to a manufacturing process

(and converted into finished products).

Planned purchases, based on forecasted demand.

Purchased from preferred suppliers using long-termcontracts (contract purchasing).

Key considerations: Price, quality, and delivery terms.

Indirect materials(MRO):

Other materials required for everyday functioning of acompany.

Unplanned purchases; numerous and small dollaramounts.

Purchased from spot market as needed.

Key consideration: Price.


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ONLINE PROCUREMENT

Why: Motorola saved $2.5B in 2002 from a total spend of $40B in DMpurchases (1 million P.O. and 6 million inventory receipts).

How:

MRO vendors such as W.W. Grainger provides 220,000+products for sale arranged in product categories.

Provides secure websites customized for each buyer.

Vendors: MRO: Ariba, MRO.com, W.W. Grainger.. DM: e-Steel, Chemconnect,

Logistics: Schneider Logistics, Ryder, FedEx.

Support: Paymaxx (payroll processing), HotOffice (groupcalendar/communications), Cylex (document storage).



E-GOVERNMENT

U.S. federal and state governments use e-commerce to recruit employees, buy supplies,distribute benefits, collect taxes, etc.

Pay.gov (U.S. Financial Management Service): Receiving tax, license, and other fee revenue ($2+trillion), disbursing S.S. payments ($1.2+ trillion), taxrefunds.

TreasuryDirect (U.S. Bureau of Public Debt):

Sell Treasury bills, notes, and notes to people andbanks.

My.ca.gov (State of California portal),myFlorida.org: Drivers license registration, selling to/buying from the

state, full text of state laws, etc.



PROCUREMENT TECHNOLOGIES

Radio frequency identification devices (RFID): Small chips affixed to merchandise that use radio

transmissions to track inventory.

Passive RFID tags receives radio signal from nearby

transmitter, extracts some power from that signal toresend it back to transmitter.

Electronic Data Interchange (EDI):

Computer-to-computer transfer of standardizedbusiness information between two firms.

Purchase orders, invoices, bills of lading, checks,remittance advices, shipping manifests, etc.

Reduces paper flow, manual edits, and errors intransactions.

Essential for automated B2B e-commerce.



HISTORY OF EDI

1950s: Companies started using computers to store andprocess transaction records.

1968: Transportation Data Coordinating Committee(TDCC) formed and charged with creating a standardthat shippers/carriers could use to share data ascomputer files rather than paper records.

1979: American National Standards Institute (ANSI)chartered the Accredited Standards Committee X12(ASC X12) to create specifications of transaction sets for

sharing business data. 1987: United Nations Economic Commission for Europe

published EDIFACT (EDI for Administration, Commerce,and Transport) standards for data exchange in Europe.

2000: ASC X12 and UN/EDIFACT agreed to develop

one common set of international EDI standards for global



COMMON ASC X12 TRANSACTION SETS



COMMON UN/EDIFACT

TRANSACTION SETS



EDI (Continued)

Internet EDI: Dramatic cost savings over historically used dedicated

connections (leased lines, dial-up connections). Concerns regarding data security remedied via secure

protocols. EDI transaction sets can be mapped 1:1 using XML data

elements. ebXML (ebXML.org) allows EDI for e-business purposes.

Financial EDI (FEDI):

EDI transaction sets to manage EFT (e.g., exchangepayment/ remittance info) across trading partners banks.

Routed via financial VANs and data stored in ACH(automated clearing house) system in ACH format.



VALUE ADDED NETWORKS (VAN)

Dedicated (leased or dial-up) networks to support securetransactions or EDI.

Advantages of EDI: VAN records all message activities in an audit log. VAN provides translation between different transaction sets used by

trading partners. VAN performs automatic compliance checking. Users need to support only one communications protocolthe VANs.

Disadvantages of EDI: Cost: Enrollment fee, monthly maintenance fee, and transaction fee

(initial cost of EDI software, hardware, and VAN enrolment: $50,000). Cumbersome and expensive for firms doing business with multiple

trading partners, each using a different VAN.

Increasingly being replaced by Virtual Private Network (VPN).



EDI/SCM AT BOEING

Background: Each airplane is custom-configured to purchasers

specifications. Each airplane requires 1+ million parts and

assemblies. 1997: Production and scheduling errors shut downtwo assembly operations for several weeks, costingBoeing $1.5 billion.

Internet EDI (1997): Allows Boeing to share engineering specs with

suppliers at low cost. Allows suppliers to deliver the right part/assembly at

the right time.



EDI/SCM AT BOEING (continued)

Internet EDI (1997) (continued): Informs suppliers of milestone achieved and

schedule changes. By 1998, increased efficiencies and reduced errors

lowered customer delivery time from 36 months to10-12 months.

PART (Part Analysis and Requirements Tracking): For 500 non-EDI Boeing customers to order

replacement parts using Boeings secure website. Processes 5000 transactions/day at about 1/10th

the cost of P.O./fax/ telephone orders. Parts delivered same or next day, increasing

customer satisfaction.



USING INTERNET FOR SCM

Why use Internet technologies in supply chains: Rapidly share info about changing demand (and adjust

quickly). Receive rapid notification of product design changes.

Share product specs and documentation efficiently and atlower costs Increase the speed of processing transactions. Reduce the costs of handling transactions. Reduce errors in transaction data.

Keys to successful supply chains: Continual communication/information sharing among

partners. Building trust via continual communication.


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B2B PORTALS

Vertical portals or vortals (e.g., VerticalNet) Industry-specific portals (verticals) offering news, research

reports, trend analysis, and marketplaces/auctions to buy/sellraw materials or excess inventory from each other.

Customer portals (e.g., Cisco, Dell): Password-protected access for customers to buy

products/services. Offers negotiated price reductions on a limited selection of

products. Also offers product usage guidelines, safety information, etc.

Private marketplace/hubs (e.g., GE Lighting, Honeywell): Uses vendor software (e.g., Ariba) to set up a private e-

procurement site providing auctions, request for quote postings,vendor bidding services, etc.

Saved United Technologies $400M+ from $3B+ purchase since1996.


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B2B MARKETPLACES

Independent industry marketplaces: Focuses on single industries, often by independent third

parties. In the hotel industry 2200+ exchanges in 2000; less than 100 by 2002.

Covisint: Automotive marketplace created by GM, Ford, and Chrysler in2000 (merged from Fords and GMs private exchanges).

Manages $250B of purchases annually. Three CEOs, who dont trust each other. Worlds greatest B2B disaster waiting to happen.

Why failures: Too many marketplaces in one industry, none having critical

mass. No barriers to entry for competitors. Added little value to customers, esp. sellers facing price

pressures.


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CHARACTERISTICS OF B2B MARKETPLACES


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Summary of Main Teaching Points

Basic concept of the procurementprocess in businesses

The differences between B2B E-Commerce and B2C E-Commerce

The issues that are particular to B2BE-Commerce

The use of RFID, EDI and VPN in B2BE-Commerce


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Key Terms you must be able to use

If you have mastered this topic, you should be able to use the following termscorrectly in your assignments and exams:

EDI

VAN VPN

E - SCM


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Questions?

Question and Answer Session


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Topic and Structure of next session

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e-commerce essential components and business model

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