ecommerce chap 06
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1© Prentice Hall, 2000
Chapter 6Business-to-Business Electronic Commerce
2© Prentice Hall, 2000
Learning Objectives
Distinguish between B2B and B2C Identify the relationship between B2B and
supply chain managementClassify the categories of B2B models and
architectures according to the nature of the electronic stores and malls
Describe typical cases of Supplier, Buyers, and Intermediary-Oriented Market Places
Outline the current and next-generation characteristics of B2B Electronic Commerce
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Distinguish between VAN-based an Internet-base EDI
Describe the role of Just-In-Time in B2B Electronic Commerce
Describe how software agents can facilitate communication between sellers and buyers
Describe how marketing is done in B2B
Learning Objectives (cont.)
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Trading Process Network (TPN)Post in General Electric
General Electric (GE)
Factories at GE Lighting division used to send hundreds of Requisitions For Quotations (RFQs) to the corporate sourcing department each day for low-value machine parts.
For each requisition, the accompanying blueprints had to be requested from storage, retrieved from the vault, transported to the processing site, photocopied, folded, attached to paper requisition forms with quote sheets, stuffed into envelopes and mailed out.
This process took at least 7 days and was so complex and time-consuming that the sourcing department normally sent out bid packages only to two or three suppliers at a time.
Its purchasing was inefficient, involved too many administrative transactions
GE is conducting electronic bids, no paperwork
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60%of the staff involved in procurement have been redeployed. The sourcing department has at least 6-8 free days a month to concentrate on strategic activities rather than on paperwork, photocopying and envelope stuffing it had to do when the process was manual.
Labor involved in procurement declined by 30%. At the same time, materials costs declined 5%-20% due to the ability to reach a wider base of suppliers online.
It used to take 18-23 days to identify suppliers, prepare a request for bid, negotiate a price and award the contract to a supplier. It now takes 9-11 days.
With the transaction handled electronically from beginning to end, invoices are automatically reconciled with purchase orders, reflecting any modifications that happen along the way.
GE Procurement departments across the world now share information about their best suppliers.
Benefits of using TPN
Trading Process Network (TPN)Post in General Electric (cont.)
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Supply ChainDefinition
All activities associated with the flow and transformation of goods from raw materials to end users
2nd TierSupplier
Upstream Internal Downstream
2nd TierSupplier
2nd TierSupplier
1st TierSupplier
1st TierSupplier
Assembly/Manufacturing and
Packaging
DistributionCenters
Retailers
Customers
GrainProducer
ProcessingFacility
Packaging Distributor
Store
Customers
CorrugateManufacturer
LumberCompany
LabelManufacturer
GrainCereal
Packaged Cereal
LabelsWord
Paperboard
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Characteristics of B2B EC
Key Entities of B2B EC Buying company with procurement management perspective
Selling company with marketing management perspective
Electronic Intermediary, an optional third party directory service provider (the scope of service may be extended to order fulfillment)
Deliverer who can fulfill a just-in-time delivery
Network platform such as the Internet, VAN, intranet and extranet
Protocol of communication such as EDI and comparison shopping possibly using software agents
Back-end information system possibly implemented using the intranet and Enterprise Resource Planning (ERP) systems
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Relationship with Electronic Marketing Supplier-oriented marketing Used to sell the company’s products and
services to business customers on the Internet Electronic catalogs are basically the same as that
for B2C EC, but they may be customized Using electronic auctions to liquidate surpluses
Characteristics of B2B EC (cont.)
Relationship with Procurement Management Purchasing company’s point of view : a medium of
achieving the goals of procurement management Procurement management’s point of view : the
buyer-oriented market can be effective Using a RFQ-bidding mechanism
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Relationship with Electronic Intermediaries Similar to the B2B electronic intermediaries, but
the customers are businesses Also, special intermediaries for matching buyers
and sellers, bartering etc.
Relationship with intranet are very importantRelationship with extranets
A dedicated network between business partners or a secured public network like the Internet
Implementing a virtually private network (VPN) to improve internet security
Characteristics of B2B EC (cont.)
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Models of B2B ECSupplier-Oriented Market Place
Individual consumers and business buyers use the same supplier-provided market place (May pay different prices due to quantity discount)
B2C E-commerce
Consumers
B2B E-Commerce
BusinessCustomers
Supplier’sProducts Catalog
Customer’sOrder Information
Supplier’sElectronic Mall
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Buyer-Oriented Market Place Buyer opens a market on its own
server and invites potential suppliers to bid on RFQs
Offer opportunity to committed suppliers
BUT as the number of such sites increase, only very big buyers can afford to fully utilize this approach
OVERCOME with the aid of software agents
Models of B2B EC (cont.)
BusinessSuppliers
Buyer’sProducts
Catalog, RFQ
Suppliers’Bids, Information
Buyer’sElectronic Mall
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Intermediary-Oriented Market Place Establish an electronic intermediary company Similar to an intermediary-based B2C mall; bring buyers
and suppliers (bidders) to one place The corporate information systems need tight coupling
with the intermediary electronic mall
Models of B2B EC (cont.)
BusinessCustomers
BusinessSuppliers
SharedProducts Catalogs
Supplier’sProduct Information
Intermediary’sElectronic Mall
Customer’sOrder Information
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Procurement Management Using B2B EC Platform
Purchasing is now a strategic function, to increase profit margins By automating and streamlining the laborious routine of the
purchasing function, purchasing professionals can focus on more strategic purchases, achieving the following goals: Reducing purchasing cycle time and cost Enhancing budgetary control Eliminating administrative errors Increasing buyers’ productivity Lowering prices through product standardization and consolidation of purchases Better information management; e.g. supplier’s information and pricing information Improving the payment process
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Case Study of Supplier-Oriented Market Place:CISCO Connection Online
Customer Service— Cisco Connection online
Online Ordering— Internet Product Center builds virtually all its products to order
Finding Order Status— gives the customers tools to find answers to order status inquiries by themselves
Benefits— save the company $363 million per year from technical support, human resources, software distribution and marketing material
The Future— expect online sales to grow more than 60% of total volume in 1999
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Case Study of Customer-Oriented Market Place: GE’s TPN Post
Provides a chance for sellers to participate in the bidding process of GE using the following procedure: Buyers prepare bidding project information Buyers post the bidding projects on the Internet Buyers identify potential suppliers Buyers invite suppliers to bid on projects Suppliers download the project information from the Internet Suppliers electronically submit bids for projects Buyers evaluate the suppliers’ bids and negotiate online to
achieve the ‘best deal’ Buyers accept the bid that best meets their requirements
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The benefits of joining GE TPN Post As buyers
Identify and build partnerships with new suppliers worldwide
Strengthen relationships and streamline sourcing processes with current business partners
Rapidly distribute information and specifications to business partners
Transmit electronic drawings to multiple suppliers simultaneously
Cut sourcing cycle times and reduce costs for sourced goods
Quickly receive and compare bids from large number of suppliers to negotiate better prices
As SellersBoost SalesExpand market reachCut costs for sales and
marketing activitiesShorten the selling cycleImprove sales
productivityStreamline the bidding
process
Case Study of Customer-Oriented Market Place: GE’s TPN Post (cont.)
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Case Study of Intermediary-Oriented Market Place: Boeing’s PART
Boeing’s PART Case Acts as an intermediary between the airlines
and parts’ suppliers Provides a single point of online access
through which airlines and parts providers can access the data needed
Goal: provide its customers with one-stop shopping with online parts and maintenance information and ordering capability
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Boeing On Line Data (BOLD) Incorporating not only engineering
drawings but manuals, catalogs and other technical information that used to be available only in paper or in microfiche format
Portable Maintenance Aid (PMA) Solves maintenance problems
Case Study of Intermediary-Oriented Market Place: Boeing’s PART (cont.)
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Benefits to Boeing’s Customers Increased productivity
spending less time searching for information; frees up engineers and maintenance technicians to focus on more productive activities
Reduced costswith information available online at the airports’ gates,
through PMA, rather than back in the office, delays at the gate due to missing information are reduced
Increased revenue opportunitythrough BOLD and PMA, a European airline estimates it
will save 1-2 days/year of down time for each aircraft
Should Boeing keep the inventory of parts in stock, or relay on the manufacturers?
Case Study of Intermediary-Oriented Market Place: Boeing’s PART (cont.)
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Just-In-Time Delivery:Fed Express InterNetShip
FedEx Internet and private networks improve
efficiency and customer satisfaction FedEx PowerShip and FedEx Ship were the
two software rolled out in the mid-1980s and 1995 respectively
Now moving to the Internet : InterNetShip
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FedEx InterNetShip Extends online capabilities to the Internet Customers can request a parcel pickup or find the
nearest drop-off point, print packing labels, compute fees, request invoice adjustments and track the status of their deliveries without leaving the Web site
FedEx COSMOS (own proprietary network) handles 54 million transactions a day (1998)
Hundreds of thousands of tracking requests per month come from links from over 5,000 Web sites to fedex.com
Just-In-Time Delivery:Fed Express InterNetShip (cont.)
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Benefits to FedEx Avoided Costs
If not for FedEx PowerShip, FedEx would have had to hire an additional 20,000 employees to answer phone calls at the call centers and key in air bills
Lower Operating CostsWithout the system, approximately half of the calls
would have gone to FedEx’s toll-free number resulting in high telephone and labor expenses
Better Customer ServiceCustomers still have a choice for how they interact
with the company, whether by e-mail, phone, fax or other means
Just-In-Time Delivery:Fed Express InterNetShip (cont.)
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Business-to-Business Auctions
Benefits New sales channel New venue for disposing excess, obsolete products Increase page views; viewers like to watch auctions Acquire and retain members
Types Independent auctions: using 3rd party auction site Community auctions: many sellers and buyers
simultaneously (Electricity, Flowers) Private auctions: large distributor (Ingrain Micro)
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What Auction Intermediary Provides? All necessary infrastructure Company controls all auction information
(software provided) All procedures for auctions Fast deployment time Search engine Trust mechanism (escrow, insurance) Activity report generation Billing and collection
Business-to-Business Auctions (cont.)
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EDI - The Infrastructure for B2B
A network for transmitting standard transactionsA paperless TPS environmentRoutine documents; purchase order, billings,
shipping manifestsDocuments translated into standard business
languageIn use since the 1970s on private VANs. Save time,
reduce errors in data entry, save money, consistent information flow
Provide strategic advantages
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Typical Flow of EDI Messages one order - seven messages!!
EDI - The Infrastructure for B2B (cont.)
RFQ = Request for Proposal P.O. = Purchasing Order
Buyer Supplier
RFQ
Response to RFQ
Purchase Order
P.O. Acknowledgement
Purchase Order Change
P.O. Change Acknowledgement
Functional Acknowledgement(for each Transaction )
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From Traditional to Internet-based EDI
Factors limiting businesses to benefit from the traditional EDI Significant initial investment is needed Restructuring business processes is necessary to
fit the EDI requirements and standards Long start-up time is needed Use of Private VANs is necessary High EDI operating cost is needed There are several EDI standards The EDI system is complex to use
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Traditional EDI does not meet following requirements: Enable more firms to use EDI Encourage full integration of EDI into trading
partner business processes Simplify EDI implementation Expand the capabilities of online information
exchange
From Traditional to Internet-based EDI (cont.)
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Reasons for firms to create the ability to change transactions over the Internet The Internet is a publicly accessible network with few
geographical constraints. Its largest attribute, large-scale connectivity (without the need to have special company networking architecture) is a seedbed for growth of a vast range of business applications.
The Internet global inter-network connections offers the potential to reach the widest possible number of trading partners of any viable alternative currently available.
From Traditional to Internet-based EDI (cont.)
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Reasons Using the Internet can cut communication cost by
over 50%. Using the Internet to exchange EDI transactions is
consistent with the growing interest of business in delivering an ever-increasing variety of products and services electronically, particularly through the Web.
Internet-based EDI can compliment or replace current EDI systems.
Internet tools such as browsers and search engines are very user friendly and most users today know how to use them.
From Traditional to Internet-based EDI (cont.)
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The Role of Agents in B2B EC
Buyer Agent B1 Buyer Agent B2
Seller Agent S1 Seller Agent S2 Seller Agent S3 Seller Agent S3
Requirement of Human Buyer Requirement of Human Buyer
Human Seller 1
Human Seller 2
Human Seller 3
Human Seller 4
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An Architecture of Intelligent Agents forElectronic Commerce: UNIK-AGENT Approach
The Role of Agents in B2B EC (cont.)
AGENT
Problem Solver Communication Controller
Problem SolvingManager
Solution Engines
DataBase
KnowledgeBase
MessageBase
Directory
OrderAgent
Message Manager
Outgoing Msg.
Incoming Msg.
Message Queue Mgt.
Individual Manager
Directory Consulting
Message Gate
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Management of Buyer Information at Buyer Sites to Integrate with Corporate Information Systems
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B PlatformBuyer’s information stored in
the seller’s server
Buyer’s information needs to be stored in the buyer’s server to integrate with back-end systems such as Intranet, Workflow & ERP
Limited bookkeeping-supported Complete bookkeeping necessary
Web technology using a thin client is adopted.
Web technology with thick client is needed. Java and External helper Program at client PC are necessary.
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Comparison Shopping with Buyer’s Own Electronic Bag
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Customers need to visit many malls Meta-Mall architecture is need for the customers to reduce the effort of visiting many sites
Every mall requires a proprietary
shopping bag and digital wallet
Standard shopping bag and digital
wallet that can work independently
of malls are necessary
Software agents merely help the
search process
Comparison-shopping needs to be treated as multiple criteria decision support
Customer membership registration is requested for each mall
Shared customer membership is necessary to allow the comparison of multiple malls with a single registration
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Just-in-Time Delivery
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Inventory availability is not
displayed
Dynamic inventory availability should be displayed to customers
Precise delivery date is less
critical
Precise delivery date should be
dynamically confirmed at
ordering time
Ordering system is fragmented
from inventory system
Integration of orders with
inventory, production scheduling,
and delivery scheduling systems
essential
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Buyer Oriented Directory
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B PlatformSeller Oriented Directory popular
To big buyers, Buyer Oriented Directory should be offered
Major motivation of EC is sales promotion
Additional motivation is the re-engineering acquisition process
Either buyer or seller oriented directory is developed
Intermediary directory is necessary to coordinate between seller and buyer oriented directories
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Formal Contract with Bidding Process
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Ordering without formal
contract is enough for order
fulfillment
Formal contract with electronic documents that include specific terms and conditions is necessary
Free contract protocol Legitimate contract protocol
needs to be conformed
Electronic version of
traditional bidding and
auction are implemented
More creative contract protocol
can be innovated
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Organizational Purchasing Decision
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Purchasing is an individual
buyer’s decision
Purchasing is an organizational buyer’s decision
Buying decision process does
not need coordination
Buying decision is made as a combination of synchronous group decision (using web conference and Internet phone) and asynchronous group decision (using workflow tools)
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Agent Based Commerce
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Human interactively involved in the
buying decision
Buyer’s and seller’s software agents assist communication to minimize human’s involvement
Software agent in one site cannot understand the norm of the counterpart agents
Mutually agreed contract type conformation is necessary to effectuate the communication between agents
Buyers have to search around the seller’s products catalog configuring manually
Seller agents assist the configuration process based on the buyer’s requirement specification
Seller’s data mining is popular Buyer’s data mining is additionally necessary
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Secure Large Amount Payment
The Role of Agents in B2B EC (cont.)
Current B-to-C Platform Prospective B-to-B Platform
Credit card is popular, and relatively high fee is charged to sellers
Electronic check and electronic fund transfer will become popular, whose fees are traditionally paid by payer
Security, certification and non-repudiation will become more critical. So registered delivery, which keeps the important transaction record at the third party will become popular
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Issues in B2B Advertisement and Marketing
Finding and retaining business customersMaking them buyReaching organizational buyers (functional,
corporate)Building relationship marketing in B2BAdvertisement, mailing lists, strategiesMailing lists: house, response, compiledThe role of the CD-ROMMarketing databases and e-mail lists
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Internet Marketing Strategies
Generating and qualifying leads with the Internet
Using Internet events to promote products and services
Executing instant fulfillment on the InternetGenerating orders through the InternetEnhancing customer relationships with the
Internet
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Managerial Issues
If sales promotion is a major concern, adopt the Supplier-Oriented Marketing approach possibly joining popular Intermediary-Oriented Market Places as well
If purchase process re-engineering is a major concern, consider establishing Customer-Oriented Market Place (if sales volume is big enough) to attract the attention of major vendors
Otherwise, join a third party Intermediary-Oriented Market Place to implement the plan from either or both aspects, because every company needs effective and efficient sales and purchases