Strategic Information Systems Annual Conference B2B Online Auctions

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Strategic Information SystemsAnnual
ConferenceB2B Online Auctions

• Guest Speakers
• Ellen Bruno, Bruno Consulting
• Kim Woodbury, TechSolutions.com
• Melissa Stepanis, FreeMarkets, Inc.
• Sponsored by Babson College

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Traditional Method of Purchasing
Create RFP
Supplier A
Send to
Collect Proposals
Submit for Approval
Supplier B
Supplier C
Chose Supplier
Analyze
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Traditional Method of Purchasing
Select Supplier
Send Invoice
Submit to Supplier
Send for Approval
Create Purchase Order
Ships Goods to Purchaser

• Results
• Time Consuming
• Costly
• Inefficient

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Online Auctioning
Buyer
Online Auction Site
Supplier A
Supplier C
Supplier B
Supplier E
Supplier D
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B2B Online Auctions

• Changes Traditional Processes.
• Brings Buyers and Multiple Suppliers Together in
  Real Time.
• Allows for Consistencies in Specifications.
• Broadens the Field for Both Suppliers and
  Buyers.

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Types of Auction Sites

• Independent Auctions
• Commodity Auctions
• Private Auctions

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Internet Business Auction Development
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B2B Technology

• Consumers
• Suppliers
• Auction Site Businesses

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Technology Considerations

• Consumer
• Administration
• Integration
• Labor Requirements
• Suppliers
• Cataloging Stock
• Hardware Requirements

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Technology Requirements

• Open, Multi-tiered Architecture
• Handle heavy bidding
• Standard Relational database
• APIs
• Testing
• Hardware

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Technology Considerations

• Auction Site Business
• Labor Requirements
• Software requirement of end-user

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Technology should support

• Registration Capabilities
• Personal Web Pages
• Content
• Security
• Customer Service
• Catalog Management
• Credit Card Processing
• Shipping/Tracking

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XML
This example shows a purchase order from an auto
dealer which is to be sent to a manufacturer.
PurchaseOrder.xml ltOrder DealerID"AB123"
gt ltManufacturer Name"Ford Motor Company"
gt ltAddress gt ltStreet gtThe American
Roadlt/Streetgt ltCity gtDearbornlt/Citygt ltState
gtMichiganlt/Stategt ltZipCode gt48121lt/ZipCodegt lt
/Addressgt lt/Manufacturergt ltModel Name"Mustang"
gt ltEngine gt1.8ilt/Enginegt ltColor
gtBlacklt/Colorgt ltTrim gtGoldlt/Trimgt lt/Modelgt lt/Or
dergt
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Benefits of Owning Technology

• Possibility of reselling
• Can be in control of offering Leading technology
• Control of internal problems rather than relying
  on another software/hardware provider

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Benefits of using 3rd Party

• Do not have to Continuously Improve Technology
• Quicker time to market
• Get the best technology available

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Options for 3rd Party Solutions

• Purchase Outright
• Transactional fee
• Contract for future purchase

Broadvision - Personalization Ariba eGain -
Customer Service
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FreeMarkets, Inc.

• B2B online auctions for buyers of direct
  materials
• Combines proprietary Bidware Internet technology
  with in depth understanding of supply markets
• Auctions for products in 70 verticals, including
  commercial machinings, injection molded plastic
  parts, metal fabrications, chemicals, and printed
  circuit boards

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Why an E-commerce Solution?

• Direct materials are often custom-made to buyers
  specifications and there are no catalogs or price
  lists to support comparison-shopping.
• Market for direct materials is highly fragmented

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Not just selling something online

• Provides consulting services to buyers to create
  markets for the products they desire
• Identify which purchases are suited to market
  making
• Create RFQ to be sent to selected suppliers
• Select potential suppliers, send RFQ, and train
  suppliers in use of Bidware software
• Conduct an anonymous, real-time, online auction.
• Assist client in the selection of a supplier that
  will provide the best overall value.

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Is there a value add? Yes!!!

• FreeMarkets auctions are saving clients millions
• Since 97 Quaker Oats has saved 8.5 mil.
• Since 99 SmithKline Beecham saved 3 mil.
• Owens Cornings savings is averaging 10.

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Whats the revenue model?

• FY99 Revenue 21 mil. Loss 21 mil.
• In exchange for services and savings, agreements
  typically provide.............
• Fixed monthly fees (collected for use of
  technology, information, staff and facilities)
• Performance incentive payments, based on volume,
  savings, or both.
• Sales commissions.

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Technology - BidWare Software

• Provides user-friendly graphical interface - bids
  displayed in seconds
• Wide range of bidding features auction formats
  (ie multi-currency / multi-period)
• Software is designed so users can connect to
  BidWare server technology

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Technology - Server / Internet

• BidServer technology - server-side application
  that manages the auctions.
• Use their own Internet connections or an ISP from
  which FreeMarkets leases private network
  services.
• Market Operations Center monitors auctions and,
  through the BidWare architecture, can respond to
  difficulties

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Competition Attracting Clients

• Biggest challenge is attracting new clients
• Long sales cycle - Changing their ways.....
• United Technologies and GM 49 FY99.
  Renegotiated UT, but lost GM.
• Market is crowded SupplierMarket.com,
  BidtheWorld.com, rfpMarket.com, and
  eBreviate.com, etc., etc., etc....................
  ...

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Strategic Initiatives

• Global expansion - Singapore, Hong Kong and India
• Form FreeMarkets Surplus Asset eMarketplace (used
  equipment / inventory)
• Acquire iMark.com. (stock transaction)
• Purchase Surplus Record, Inc. and SR Auction,
  Inc. (cash transaction)

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Summary-Pros Cons to Supplier

• Pros
• Reduced Transaction Costs.
• Extends Reach.
• Streamlined Process.

• Cons
• Increased Competition.
• Lower PricesLower Margins.
• Future of Sales Department.
• Lost Relationships.

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Summary-Pros Cons to Purchaser

• Pros
• Lower Prices.
• Better Selection.
• Less Paperwork.
• Overall Efficiency.

• Cons
• Uncertainty of New Suppliers Reputation.
• Must Set Up Infrastructure.
• Downsize to Purchasing Department.
• Lost Relationships.

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