Ecommerce business technology society Sixth Edition Kenneth C

Chapter 12 B 2 B E-commerce: Supply Chain Management and Collaborative Commerce Copyright ©

Volkswagen Builds Its B 2 B Net Marketplace Class Discussion n Why didn’t Volkswagen want to use a more open or public electronic exchange for its parts supply? Why didn’t it join an industry consortium such as Covisint? n What kinds of services are provided by VWGroup. Supply? n What is e. CAP and who benefits from its use? n Do you think suppliers are disadvantaged by this B 2 B marketplace? Copyright © 2010 Pearson Education, Inc. Slide 12 -3

Trends in B 2 B E-commerce n n n Firms more comfortable with Internet security, payments, helping expand use of B 2 B channels Growing realization that most important benefits are not low costs of materials, but gains in supply chain efficiency, better spend management, improved business process Decline of independent Net marketplaces Rapid growth in collaborative commerce B 2 B applications based on private networks Continued consolidation in Net marketplace and software vendor markets Copyright © 2010 Pearson Education, Inc. Slide 12 -4

Defining B 2 B Commerce n Before Internet: v B 2 B transactions called trade or procurement process n Total inter-firm trade: v Total flow of value among firms n B 2 B commerce: v All types of computer-enabled inter-firm trade n B 2 B e-commerce: v The portion of B 2 B commerce enabled by the Internet Copyright © 2010 Pearson Education, Inc. Slide 12 -5

Evolution of the Use of Technology Platforms in B 2 B Commerce Figure 12.

Growth of B 2 B Commerce 2002– 2013 Figure 12. 2, Page 776 Copyright

The Growth of B 2 B E-commerce 2009– 2013: B 2 B e-commerce will grow from 30% to 35% of total inter-firm trade n Electronic marketplaces will not be dominant form of B 2 B e-commerce n Private industrial networks continue to play dominant role in B 2 B n Non-EDI B 2 B e-commerce most rapidly growing type of e-commerce n EDI still large but will decline over time n Copyright © 2010 Pearson Education, Inc. Slide 12 -8

Industry Forecasts Not all industries similarly affected by B 2 B e-commerce n Not all industries would benefit equally n Factors influencing move to e-commerce n v Significant utilization of EDI v Large investments in IT and Internet infrastructure n E. g. , aerospace and defense, computer, and industrial equipment industries v Market concentrated on purchasing and/or selling n E. g. , energy, chemical industries Copyright © 2010 Pearson Education, Inc. Slide 12 -9

Potential Benefits of B 2 B E-commerce n Lower administrative costs n Lower search costs for buyers n Reduced inventory costs v Increasing competition among suppliers (increasing price transparency) v Reducing inventory carried n Lower transaction costs: v Eliminating paperwork v Automating parts of procurement process Copyright © 2010 Pearson Education, Inc. Slide 12 -10

Potential Benefits Increased production flexibility by ensuring just-in-time parts delivery n Improved quality of products by increasing cooperation among buyers and sellers n Decreased product cycle time by sharing of designs and production schedules n Increased opportunities for collaborating with suppliers and distributors n Greater price transparency n Copyright © 2010 Pearson Education, Inc. Slide 12 -11

The Procurement Process and the Supply Chain n Procurement process: v The way firms purchase materials they need to make products n Supply chain: v Firms that purchase goods, their suppliers, and their suppliers’ suppliers, and relationships and processes involved n Steps in procurement process: v Deciding who to buy from and what to pay v Completing transaction Copyright © 2010 Pearson Education, Inc. Slide 12 -12

The Procurement Process Figure 12. 3, Page 778 Copyright © 2010 Pearson Education, Inc.

Types of Procurement n Firms purchase two types of goods Direct goods: integrally involved in production process 2. Indirect goods: all goods not directly involved in production process (MRO goods) 1. n Firms use two methods to purchase 1. Contract purchasing: n 2. Involves long-term written agreements to purchase specified products, with agreed-upon terms and quality Spot purchasing: n Involves purchase of goods based on immediate needs in larger marketplaces that involve many suppliers Copyright © 2010 Pearson Education, Inc. Slide 12 -14

Types of Procurement is highly information intensive and labor intensive— 3. 3 million U. S. workers n Use of Internet can simplify process and reduce search, research, negotiating costs n Multi-tier supply chain n v Complex series of transactions between firm and thousands of suppliers Copyright © 2010 Pearson Education, Inc. Slide 12 -15

The Multi-Tier Supply Chain Figure 12. 4, Page 780 Copyright © 2010 Pearson Education,

The Role of Existing Legacy Computer Systems n Legacy computer systems v Generally older mainframe and minicomputer systems used to manage key business processes within firm v MRP systems (materials requirements planning) n Enable firms to predict, track, and manage parts of complex manufactured goods v ERP systems (enterprise resource planning) n More sophisticated MRP systems that include human resources and financial components Copyright © 2010 Pearson Education, Inc. Slide 12 -17

Trends in Supply Chain Management and Collaborative Commerce n Supply chain management (SCM): v Wide variety of activities that firms and industries use to coordinate key players in their procurement process n Major developments in SCM v Supply chain simplification v Electronic data interchange v Supply chain management systems v Collaborative commerce Copyright © 2010 Pearson Education, Inc. Slide 12 -18

Supply Chain Simplification Essential for just-in-time production models n Typically achieved by: n v Working with strategic group of suppliers to reduce product and administrative costs, while improving quality v Purchasing under long-term contracts that contain specified quality, cost, and timing goals n May involve v Joint product development and design v Integration of computer systems v Tight coupling Copyright © 2010 Pearson Education, Inc. Slide 12 -19

Electronic Data Interchange (EDI) Broadly defined communications protocol for exchanging documents among computers n Stage 1: 1970 s– 1980 s n v n Stage 2: Early 1990 s v n Document elimination Stage 3: Mid-1990 s v n Document automation Move toward continuous replenishment/access model Today: v EDI provides for exchange of critical business information between computer applications supporting wide variety of business processes Copyright © 2010 Pearson Education, Inc. Slide 12 -20

The Evolution of EDI as a B 2 B Medium Figure 12. 5, Page

Supply Chain Management Systems n Continuously link activities of buying, making, and moving products from suppliers to purchasing firms n Integrates demand side of business equation by including order entry system in the process n With SCM system and continuous replenishment, inventory is eliminated and production begins only when order is received n Hewlett Packard’s SCM system: elapsed time from order entry to shipping PC is 48 hours. Copyright © 2010 Pearson Education, Inc. Slide 12 -22

Supply Chain Management Systems Figure 12. 6, Page 784 Copyright © 2010 Pearson Education,

Insight on Technology RFID Autoidentification: Making Your Supply Chain Visible Class Discussion n Why is RFID an improvement over bar codes? n How does RFID work? n Why is Wal-Mart supporting RFID? n What impact will widespread adoption of RFID have on Internet B 2 B commerce? Copyright © 2010 Pearson Education, Inc. Slide 12 -24

Collaborative Commerce n n n Use of digital technologies enabling organizations to collaboratively design, develop, build, and manage products through life cycles Direct extension of SCM systems and supply chain simplification Involves move from transaction focus to relationship focus among supply chain participants Unlike EDI, more like an interactive teleconference among members of supply chain Example: Group Dekko Copyright © 2010 Pearson Education, Inc. Slide 12 -25

Elements of a Collaborative Commerce System Figure 12. 7, Page 788 Copyright © 2010

Two Main Types of Internet-Based B 2 B Commerce 1. Net marketplaces: v v v 2. Bring together potentially thousands of sellers and buyers in single digital marketplace operated over Internet Transaction-based Support many-to-many as well as one-to-many relationships Private industrial networks: v v Bring together small number of strategic business partner firms that collaborate to develop highly efficient supply chains Relationship-based Support many-to-one and many-to-few relationships Largest form of B 2 B e-commerce Copyright © 2010 Pearson Education, Inc. Slide 12 -27

Two Main Types of Internet-Based B 2 B Commerce Figure 12. 8, Page 789

Net Marketplaces n Various ways to classify Net marketplaces: v Pricing mechanism, nature of market served, ownership n By business functionality v What businesses buy (direct vs. indirect goods) v How business buy (spot purchasing vs. long-term sourcing) v Four main types E-distributors 2. E-procurement networks 3. Exchanges 4. Industry consortia 1. Copyright © 2010 Pearson Education, Inc. Slide 12 -29

Pure Types of Net Marketplaces Figure 12. 9, Page 791 Copyright © 2010 Pearson

Table 12. 2, Page 791 Copyright © 2010 Pearson Education, Inc. Slide 12 -31

E-distributors n n n n Most common type of Net marketplace Electronic catalogs representing products of thousands of direct manufacturers Typically independently owned intermediaries Offer industrial customers single source to purchase indirect goods on spot basis Typically horizontal—serve many different industries with products from many different suppliers Usually fixed price—discounts for large customers Example: W. W. Grainger Copyright © 2010 Pearson Education, Inc. Slide 12 -32

E-distributors Figure 12. 10, Page 792 Copyright © 2010 Pearson Education, Inc. Slide 12

E-procurement Net Marketplaces Independently owned intermediaries Connect hundreds of suppliers of indirect goods Firms pay fees to join market Typically for long-term contractual purchasing of indirect goods n Revenues from transaction fees, licensing consultation services and software, network fees n Offer value chain management (VCM) services n n v n n Automation of entire procurement process on buyer side, automation of selling business processes on seller side Many-to-many market Example: Ariba Copyright © 2010 Pearson Education, Inc. Slide 12 -34

E-procurement Net Marketplaces Figure 12. 11, Page 793 Copyright © 2010 Pearson Education, Inc.

Exchanges n n n Independently owned online marketplaces Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environment Typically vertical markets—spot purchasing requirements of large firms in single industry Charge commission fees on transaction Variety of pricing models used v Online negotiation, auction, RFQ, fixed Tend to be buyer-biased n Suppliers disadvantaged by competition n Many have failed due to low liquidity n Copyright © 2010 Pearson Education, Inc. Slide 12 -36

Exchanges Figure 12. 12, Page 795 Copyright © 2010 Pearson Education, Inc. Slide 12

Industry Consortia Industry-owned vertical markets Enable buyers to purchase direct inputs from limited set of invited participants n Emphasize long-term contractual purchasing, stable relationships, creation of data standards n Ultimate objective: n n v n n Make money from transaction and subscription fees Offer many different pricing mechanisms v n Unification of supply chains within entire industries through common network and computing platform Auctions, fixed prices, RFQs, negotiated Can force suppliers to use consortia’s networks Copyright © 2010 Pearson Education, Inc. Slide 12 -38

Industry Consortia Figure 12. 13, Page 797 Copyright © 2010 Pearson Education, Inc. Slide

The Long-Term Dynamics of Net Marketplaces Pure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement process n Consortia and exchanges beginning to work together in selected markets n E-distributors joining large e-procurement systems and industry consortia as suppliers n Movement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goods n Copyright © 2010 Pearson Education, Inc. Slide 12 -40

Net Marketplace Trends Figure 12. 14, Page 800 Copyright © 2010 Pearson Education, Inc.

Insight on Society Are Net Marketplaces Anti-Competitive Cartels? Class Discussion n How can Net marketplaces and private industrial networks reduce competition in the marketplace, drive up prices, and reduce variety in markets? n What is a monopsony, and how do Net marketplaces encourage the development of monopsonies? n How can Net marketplaces be used to exclude competitors from low priced markets? n Why do Net marketplaces inevitably lead to a single marketplace owner or provider? Copyright © 2010 Pearson Education, Inc. Slide 12 -42

Private Industrial Networks n Private trading exchanges (PTXs) n Web-enabled networks for coordination of transorganizational business processes (collaborative commerce) v Direct descendant of EDI; closely tied to ERP systems v Typically involve manufacturing and support industries v Typically center around single, very large manufacturing firm that sponsors network n Range in scope from single firm to entire industry n Example: Procter & Gamble Copyright © 2010 Pearson Education, Inc. Slide 12 -43

Procter & Gamble’s Private Industrial Network Figure 12. 15, Page 803 Copyright © 2010

Characteristics of Private Industrial Networks n Objectives include: v v v Efficient purchasing and selling business processes industry-wide Industry-wide resource planning to supplement enterprise-wide resource planning Increasing supply chain visibility Closer buyer–supplier relationships Operating on global scale Reducing industry risk by preventing imbalances of supply and demand Focus on continuous business process coordination n Typically focus on single sponsoring company that “owns” the network n Copyright © 2010 Pearson Education, Inc. Slide 12 -45

Insight on Business Wal-Mart Develops a Private Industrial Network Class Discussion n What is Wal-Mart’s Retail Link system and how has it changed since the early 1990 s? n Why is Wal-Mart still using EDI-based systems? n Why won’t Wal-Mart join in an industry-backed system? n Could Wal-Mart’s plan to allow suppliers to directly sell online to consumers be a threat to Amazon? Copyright © 2010 Pearson Education, Inc. Slide 12 -46

Private Industrial Networks and Collaborative Commerce n Forms of collaboration: v Collaborative resource planning, forecasting, and replenishment (CPFR): n Working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities to ensure that retail and wholesale shelf space is replenished with just the right amount of goods v Demand chain visibility v Marketing coordination and product design n Can ensure products fulfill claims of marketing n Feedback enables closed loop marketing Copyright © 2010 Pearson Education, Inc. Slide 12 -47

Pieces of the Collaborative Commerce Puzzle Figure 12. 16, Page 807 Copyright © 2010

Implementation Barriers n Concerns about sharing of proprietary, sensitive data n Integrating private industrial networks into existing ERP systems and EDI networks difficult, expensive n Requires change in mindset and behavior of employees and suppliers v All participants lose some independence Copyright © 2010 Pearson Education, Inc. Slide 12 -49

Industry-Wide Private Industrial Networks Successful single firm networks adopted by entire industry n P&G system sold to IBM, re-sold to entire consumer products industry in the United States n ISYNC: manufacturers in alcohol and beverage, automotive, entertainment, grocery, healthcare, office supplies industries n Agentrics: founded by world’s largest retailers; focuses on auctions, services for retail industry n Copyright © 2010 Pearson Education, Inc. Slide 12 -50

An Industry-Wide Private Industrial Network Figure 12. 17, Page 809 Copyright © 2010 Pearson

Long-Term Dynamics of Private Industrial Networks n As large firms become more accustomed to working closely with both supply chain partners and distributors, they will seek to push the boundaries of their networks to extend across the industry as a whole, to other industries, and to elaborate new roles for themselves and others. Copyright © 2010 Pearson Education, Inc. Slide 12 -52

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