Unit II

Business-to-Business Electronic Commerce

Key technologies :
Following are the key technologies used in B2B e-commerce:
Electronic Data Interchange (EDI) - EDI is an inter organizational
exchange of business documents in a structured and machine processable
format.
Internet - Internet represents world wide web or network of networks
connecting computers across the world.
Intranet- Intranet represents a dedicated network of computers within a
single organization
Extranet - Extranet represents a network where outside business partners,
supplier or customers can have limited access to a portion of enterprise
intranet/network.
Back-End Information System Integration - Back End information
systems are database management systems used to manage the business data.
Three models of B2B EC :
In this section, the three models of B2B EC are described. They are classified
depending on who controls the marketplace: the buyer, the supplier or the
intermediary.
In a Buyer-Oriented Marketplace few buyers face many suppliers.
In a Supplier-Oriented Marketplace many buyers face few suppliers.
In an Intermediary-Oriented Marketplace many buyers face many suppliers.
Other important B2B models are virtual corporation, networking between the
headquarters and subsidiaries and online services to business.

a) Supplier-oriented Marketplace
A Web-based marketplace in which one company sells to many business buyers
from e-catalogs or auctions, frequently over an extranet
B2B Sellers
Customer Service



Examples of this model are Dell , Intel and Cisco and IBM.

Limitations :
How to find a buyer
Channel conflicts with their existing distribution Systems
The cost to the customers can be high

Example : Cisco Connection Online Case
Cisco uses the Supplier-Oriented Marketplace successfully. The market is operated
by Cisco Connection Online. In 1997 Cisco sold more than US$ 1 billion online
(total: US$ 6.4 billion) of routers, switches and other network interconnect devices.
Ciscos business model also includes customer service and finding order status. In
1991, Cisco began providing electronic support using the Internet. The first
applications were software downloads, defect tracking and technical advice. Three
years later, in 1994, Cisco put its system on the Web naming it Cisco Connection
Online. By 1998, customers were using Ciscos Web site about one million times a
month to receive technical assistance, check orders or download software. Nearly
70 percent of the technical support and customer service calls are handled online.
As a result, Cisco increased its technical support productivity by about 200 to 300
percent per year. Furthermore, the online technical support reduced technical
support staff costs by about US$ 125 million. Since 1996, Ciscos Internet Product
Center allows customers to buy any products via the Web, saving time for both
Cisco and its customers. Before the development of the Web site, ordering a
product was lengthy and complicated. Cisco also provides tools on its Web site
where customers can find answers to questions like e.g. When will the order be
ready?.
Cisco estimates that putting its applications online in 1998 saved the company US
$363 million per year. Additionally, Cisco saves US$ 180 million per year in
distribution, packaging and duplication, because customers download new
software releases directly from Ciscos site. By providing product and pricing
information on the Web site and on Web-based CD-ROMs, Cisco also saves US$
50 million per year in printing and distributing catalogues.

b) Buyer-Oriented Marketplace

A buyer opens an electronic market on its own server and invites potential
suppliers to bid on the announced RFQs(Request for Quote- invitation to
participate in a tendering system).
Offers a greater opportunity to committed suppliers.
It does not exist in B2C EC.
The Electronic bidding reduce the purchasing cost and cycle time.

Limitations:
Sellers have to search for the sites with relevant tenders.
Business suppliers
Buyers
electronic store



Buyers
requesting
products
catalog
Suppliers Bid
information


Example: GEs lightning TPN (Trading process network)

The buyers bidding site is the most popular type of Buyer-Oriented Marketplace.
This example shows GEs electronic bidding site (GE TPN Post) which enhances
the companys procurement process. GE also opened its site to other buyers which
also can profit from the benefits. GE charges fees for using its site and therefore
generates additional profits. For using GEs bidding site, buyers prepare bidding
project information and post it on the Internet. After the identification of potential
suppliers, these suppliers are invited to bid on the project. Suppliers can download
the project information from the Internet and submit bids for the project. Buyers
then evaluate the suppliers bids and may negotiate electronically. Buyers accept
the bids that best meet their requirements. By doing so, buyers can identify and
build partnerships with new suppliers worldwide. The information and
specifications can be rapidly (simultaneously) distributed to business partners
(suppliers). As a result, bids can rapidly be received and compared from a large
number of suppliers to negotiate better prices.

GEs bidding site also offers benefits to suppliers. Sellers can gain instant access to
a large-scale buyer with over US$ 1 billion in purchasing power. Therefore the
sellers can expand their market reach and can lower costs for sales and marketing
activities.

c) Intermediary- oriented market place

3
rd
party sets up marketplace: matches buyers and sellers.
Bring buyers and suppliers to one place.
The corporate info systems need tight coupling with intermediary electronic
mall.
Examples: Boeings PART, ProcureNet.
Boeings PART links airlines with 300 key suppliers of Boeings maintenance
parts.
Intermediary marketplace are frequently delievered on an extranet such as in
the case of ANX(Automative Network Exchange- a large private extranet
that connects automotive suppliers to automotive manufacturers).



Business Customers Business Suppliers
















Customers
Order info.
Shared
Product
Catalogs
Suppliers
Product
info.
Other Business models:

a) Virtual Corporation
An organization composed of several business partners sharing costs and
resources for the purpose of producing a product or service.
Goals that VCs pursue are:
Excellence - each partner brings its core competence.
utilization - resources of the business partners are frequently
underutilized. A VC can utilize them more profitably.
Opportunism an VC can find and meet market opportunity
better than an individual company.
Example: Safari Notebook Computer
To produce its Safari notebook computer, American Telephone & Telegraph
Co. formed a virtual corporation with two Japanese companies. The
company used Marubeni Trading Co., which partnered with Matsushita
Electrical Industrial Co. to produce the computer.
IBM and Apple
Although they are usually competitors, IBM and Apple formed a virtual
corporation for mutual benefit. IBM and Apple teamed up with Motorola to
develop an operating system and microprocessor for a new generation of
computers.
b) Networking Between headquarters and Subsidiaries
B2B EC platform can help the communication and collaboration between
headquarters and subsidiaries or franchiser and franchisee by providing
email, message boards and chat rooms and online corporate data access.
Helps the franchiser create the global brand marketing and management
for franchisees.
On demand training program can also be shared by franchisees.





Procurement Management using the Buyers Marketplace

Procurement Methods
Conduct bidding or tendering (a reverse auction) in a system in which
suppliers compete against each other.
Buy directly from manufacturers, wholesalers, or retailers from their
catalogs and possibly by negotiation.
Buy from the catalog of an intermediary(e-distributor) that aggregates
sellers catalogs.
Buy from an internal buyers catalog, in which company-approved
vendors catalogs, including agreed-upon prices, are aggregated.
Buy at private or public auction sites in which the organization
participates as one of the buyers.
Join a group-purchasing system that aggregates participants demand,
creating a large volume.
Buy at an exchange or industrial mall.
Collaborate with suppliers to share information about sales and
inventory, so as to reduce inventory and stock-outs and enhance just-
in-time delivery.

Inefficiencies in Procurement Management
A high percentage of this time is spent on value added activities such
as performing data entry, correcting errors in paperwork, expediting
delivery or solving quality problems.Do not have sufficient time to
pay full attention to upstream activities.
Goals of E-Procurement:
Increasing the productivity of purchasing agents
Lowering purchase prices through product standardization,
reverse auctions, volume discounts, and consolidation of
purchases
Improving information flow and management
Minimizing the purchases made from noncontract vendors
Improving the payment process and saving due to expedited
payments (for sellers)
Establishing efficient, collaborative supplier relations
Ensuring delivery on time, every time
Slashing order-fulfillment and processing times by leveraging
automation
Reducing the skill requirements and training needs of purchasing
agents
Reducing the number of suppliers
Streamlining the purchasing process, making it simple and fast.
Reducing the administrative processing cost per order by as much
as 90%
Finding new suppliers and vendors that can provide goods and
services faster and/or cheaper (improved sourcing)
Integrating budgetary controls into the procurement process
Minimizing human errors in the buying or shipping process
Monitoring and regulating buying behavior

Other Procurement Methods:
internal procurement marketplace
The aggregated catalogs of all approved suppliers combined into a
single internal electronic catalog.
desktop purchasing
Direct purchasing from internal
marketplaces without the approval of supervisors and without the
intervention of a procurement department.
group purchasing
The aggregation of orders from several buyers into volume purchases
so that better prices can be negotiated.









Case Study of Supplier-Oriented Market Place:
CISCO Connection Online

Customer Service Cisco began providing electronic support in 1991
using the internet. Software downloads, defect tracking and technical
advice.
Online Ordering Internet Product Center builds virtually all its
products to order . It allowed users to purchase any Cisco product
over the Web. A program that was launched in November 1997
interactively links the customers and Ciscos computer systems over
the internet and private networks, so that the configuration and price
can be validated at the customers own PC even before the order is
placed. This approach can be possible if the customer commits to
Cisco.
Finding Order Status gives the customers tools on its website to
find answers to order status inquiries by themselves. Cisco records a
shipping date, a method of shipment and the current location of each
product.
Benefits save the company $363 million per year from operating
cost, technical support productivity increased by 200 percent to 300
percent per year, online technical support reduced technical support
staff, software distribution cost and marketing material.
The Future expect online sales to grow more than 60% of total
volume in 1999.

Case Study of Customer-Oriented Market Place:
GEs TPN Post

Tpn.geis.com- the electronic bidding site built to enhance GEs
procurement process. This site provides a chance for the sellers to
participate in the bidding process of GE according to the following
procedure:
Buyers prepare bidding project information
Buyers post the bidding projects on the Internet(RFQs)
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

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 Sellers
Boosted Sales
Expand market reach
Cut costs for sales and marketing activities
Shorten the selling cycle
Improve sales productivity
Streamline the bidding process





Case Study of Intermediary-Oriented Market Place:
Boeings PART

Boeings 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.
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
Benefits to Boeings Customers
o Increased productivity
spending less time searching for information freed up engineers and
maintenance technicians to focus on more productive activities
o Reduced costs
with 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
o Increased revenue opportunity
through BOLD and PMA, a European airline estimates it will save
1-2 days/year of down time for each aircraft




Just in Time delivery (JIT) : FedEx InterNetShop Case
In such a case (JIT), delivery materials and parts on time is a must.
Using E-Commerce, it is highly possible to assure JIT deliveries.
Just in time delivery can be realized by the co-coordinated effort of
delivery- service company and suppliers inventory policy.
For the B2B E-Commerce environment the advance confirmation of
the delivery date at the contract stage is very important.
Direct marketing requires an internal JIT manufacturing system; the
JIT delivery and advanced confirmation of suppliers inventory are
essential elements for B2B.
FEDEX is a delivery company. It delivers 2.5 million packages daily
to 211 countries around the world with an on-time delivery rate of 99
percent.
In July 1996, FedEx launched InterNetShip, extending online
tracking 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.
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 costs- Without the system, approximately half
of the calls would have gone to FedExs toll-free number
resulting in high telephone and labor expenses.
Better customer service- Customers still have a choice for how
they interact with the company, whether by e-mail, phone, fax or
other means.

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: companies use a third-party auctioneer to
create the site and sell the goods. Eg: www.fairmarket.com
Community auctions: many sellers and buyers come together to a
third- party web site.(eg: Electricity)
Private auctions: several companies bypass the intermediaries and
auction their products by themselves.
Ingram Micro has its own site www.auctionblock.com, for selling
obsolete computer equipment to its regular business customers.

Business to Business Services
Services provided by Intermediaries:
CommerceNet- global nonprofit membership organization that aims
to meet the needs of companies doing EC.
Open Buying on the Internet- OBI Consortium is a nonprofit
organization dedicated to developing open standards for B2B Internet
commerce.
ConnectUs- It is an online service designed for use by companies. It
provides all the necessary information that supports card purchasing
and facilitates trades done with EDI.
Financial Services Technology Consortium (FSTC) and the Smart
Card Forum(SCF) - organizations of banks,financial institutions,
computer and telecommunications firms and government and private
research laboratories that jointly pursue EC research related to
electronic banking and payment systems.
Traditional EDI
EDI and Standards
Standardizes the process of trading and tracking purchase orders,
invoices, payments and delivery schedules.
translates into standard business language and transmits them
between trading partners using telecommunications links.
Most popular standard is United Nations EDI.

One-order seven messages

P.O.= Purchasing order



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