Chapter 5 Business-to-Business Strategies: From Electronic Data Interchange to Electronic Commerce

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Chapter 5Business-to-Business Strategies From
Electronic Data Interchange to Electronic
Commerce

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Purchasing, Logistics, and Support Activities

• Purchasing activities
• Include identifying vendors, evaluating vendors,
  selecting specific products, and placing orders
• Supply chain
• Part of an industry value chain that precedes a
  particular strategic business unit

• Procurement
• Includes all purchasing activities, plus the
  monitoring of all elements of purchase
  transactions
• Supply management
• Term used to describe procurement activities
• Sourcing
• Procurement activity devoted to identifying
  suppliers and determining their qualifications
• E-procurement or e-sourcing
• Use of Internet technologies in procurement and
  sourcing activities

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Trends in Supply Chain Management

• Some Supply Chain Management trends include
• Supply Chain Simplification
• Electronic Data Interchange (EDI)
• Collaborative commerce
• Net Marketplaces and Private Industrial Networks

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Supply Chain Simplification

• The reduction of the size of a firms supply
  chain
• Firms work closely with a strategic group of
  suppliers to reduce product costs and
  administrative costs
• Long term contract purchases containing
  pre-specified product quality requirements and
  pre-specified timing goals
• Shown to improve end product quality and ensure
  uninterrupted production

Discuss what some simplification strategies would
be for Ford Wal-Mart Macys Wegmans
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Electronic Data Interchange

• Developed to reduce cost, delays, and errors
  inherent in the manual exchanges of documents
• differs from unstructured message because its
  messages are organized with distinct field for
  each important piece of information
• EDI industry committees define the structure and
  information fields of electronic documents for
  that industry

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EDI on the Internet

• Initial roadblocks to conducting EDI over the
  Internet included
• Concerns about security
• The Internets inability to provide audit logs
  and third-party verification of message
  transmission and delivery
• Nonrepudiation
• Ability to establish that a particular
  transaction actually occurred

• Internet EDI or Web EDI
• EDI on the Internet
• Open architecture of the Internet allows trading
  partners unlimited opportunities for customizing
  information interchanges
• New tools such as XML help trading partners be
  even more flexible in exchanging detailed
  information

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Value-Added Networks

• Indirect connection EDI
• To send an EDI transaction set to a trading
  partner
• VAN customer connects to the VAN then forwards an
  EDI-formatted message to the VAN
• VAN logs the message and delivers it to the
  trading partners mailbox
• Trading partner then dials in to the VAN and
  retrieves its EDI-formatted messages

• Direct connection EDI
• Requires each business in the network to operate
  its own on-site EDI translator computer
• EDI translator computers are connected directly
  to each other using modems and dial-up telephone
  lines or dedicated leased lines

Users need to support only the VANs one
communications protocol. The VAN Records
message activity in an audit log can provide
translation between different transaction sets
used by trading partners can perform automatic
compliance checking
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Disadvantages of Using a VAN

• Cost
• Most VANs require an enrollment fee, a monthly
  maintenance fee, and a transaction fee
• Using VANs can become cumbersome and expensive
  for companies that want to do business with a
  number of trading partners, each using different
  VANs

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Elements of a Collaborative Commerce System

• Using digital technologies to permit
  organizations to collaboratively design, develop,
  build, and manage products through their life
  cycles

Exercise Do a search on collaborative
commerce. What is it? What are some firms
involved?
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Net Marketplaces Private Networks
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Main Types of Internet-based B2B Commerce

• Net Marketplaces (also referred to as exchanges
  or hubs)
• assemble thousand of sellers and buyers in a
  single digital marketplace on the Internet
• owned be either the buyer or the seller
• operate as independent intermediaries between the
  buyer and seller

• Private industrial networks
• bring together a small number of strategic
  business partners who collaborate to develop
  efficient supply chains and to satisfy customer
  demand for product
• by far the largest form of B2B commerce,
  presently comprising 93 of the total
  computer-assisted inter-firm trade

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Two Main Type of Internet-based B2B Commerce

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Types of Procurement

• Purchases of direct goods
• directly involved in the production process
• Purchases of indirect goods
• needed for production process but not directly
  involved in creating the end product.
• often called MRO goods -- maintenance, repair,
  and operations

• Contract purchases
• long-term agreements to buy a specified amount of
  a product. Pre-specified quality requirements
  terms
• Spot purchases
• meet the immediate needs of a firm.
• most often made on a spot purchase basis in a
  large marketplace that includes many suppliers

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Pure Types of Net Marketplaces

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Net Marketplaces E-distributors

• Independently owned intermediaries
• offer individual customers a single source from
  which to make spot purchases of indirect or MRO
  goods
• operate in a horizontal market that serves many
  different industries with products from many
  different suppliers

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Net Marketplaces E-procurement

• Independently owned intermediaries
• connecting hundreds of online suppliers to
  business firms who pay a fee to join the market
• Operate in a horizontal market use long-term
  contractual purchasing agreements
• Provide value chain management services
• automation of a firms entire procurement process
  on the buyer side automation of the selling
  processes on the seller side

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Net Marketplaces Exchanges

• Independently owned online marketplaces
• connect hundreds of suppliers to potentially
  thousands of buyers in a dynamic real-time
  environment
• Typically vertical markets in which spot
  purchases can be made for direct inputs (both
  goods and services)
• make money by charging a commission on each
  transaction

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Net Marketplaces Industry Consortia

• Industry-owned vertical markets where long-term
  contractual purchases of direct inputs can be
  made from a limited set of invited participants
• Serve to reduce supply chain inefficiencies by
  unifying the supply chain for an industry through
  a common network and computing platform

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Pure Types of Net Marketplaces

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Exercise

• Examine the Web site for one of the
  e-distributors in the previous slide
• Compare and contrast it with one of the Web sites
  listed for e-procurement or Exchanges
• If you were the manager of a medium-sized firm,
  from which of these three would you likely
  purchase your indirect inputs? Why?

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Long-term Dynamics of Net Marketplaces

• Prototype Internet-based marketplace
• Several thousand created however, most did not
  succeed -- did not attract enough players
• real value of B2B commerce will only be realized
  when it changes
• the entire procurement system,
• supply chain
• collaboration process among firms

• Industry consortia sprang up in 1999 and 2000
• Industry consortia are profitable because
• charge the large buyer firms transaction and
  subscription fees, but ..
• benefits more than offset the cost of membership

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Net Marketplace Trend

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Exercise

• Go to www.covisint.com
• Examine the points about products and
  resources
• What advantages and disadvantages does covisint
  bring to industrial firms? To other net
  marketplaces?

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Private Industrial Networks

• Dominate B2B commerce
• Web-enabled networks for coordinating
  trans-organizational business processes
  (collaborative commerce)
• Range in scope from a single firm to an entire
  industry e.g., automobiles
• Covisint -- Created in 2000 by a consortium of
  DaimlerChrysler, Ford, and General Motors
• In the hotel industry Marriott, Hyatt, and three
  other major hotel chains formed a consortium to
  create Avendra
• Central purpose is to provide industry-wide
  global solutions to achieve the highest levels of
  efficiency
• Generally start with a single sponsoring company
  that owns the network

• Differentiates private industrial networks from
  consortia usually owned collectively by major
  firms through equity participation
• Transforming the supply chain by focusing on
  continuous business process coordination between
  companies
• Coordination includes product design, demand
  forecasting, asset management, and sales and
  marketing plans

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Proctor Gambles Private Industrial Network

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Private Industrial Networks Collaborative
Commerce

• CPFR or industry collaborative resource planning,
  forecasting, and replenishment
• working with network members to forecast demand,
  develop production plans, and coordinate
  shipping, warehousing, and stocking activities.
• goal is to ensure that retail and wholesale shelf
  space is precisely maintained

• Supply chain and distribution chain visibility
• in the past impossible to know where excess
  capacity existed in a supply or distribution
  chain
• Eliminating excess inventories by halting
  production of overstocked goods can raise the
  profit margins for all network members because
  products will no longer need to be discounted in
  order to move them off the shelves

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Private Industrial Networks Collaborative
Commerce

• Marketing and product design collaboration
• can be used to involve a firms suppliers in
  product design and marketing activities as well
  as the related activities of their supply and
  distribution chain partners
• can ensure that the parts used to build a product
  live up to the claims of the marketers
• Collaborative commerce application used in a
  private industrial network
• can also make possible closed loop marketing in
  which customer feedback will directly impact
  product design

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An Industry-wide Private Industrial Network

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Exercise

• Go to the following Web Sites
• Summarize what the site does and the value it
  creates for customers
• Ariba (ariba.com)
• IBM Global Services
• (http//www-1.ibm.com/services/)