B2B EC

1
B2B EC and Exchanges

• September 2002
• Jae Kyu Lee
• Graduate School of Management
• Korea Advanced Institute of Science and
  Technology

2
Table of Contents

• Architectures of Exchange Solutions
• Evaluation of Industry Trading Exchanges
• Dynamics in Exchanges
• Exchange Strategies
• Why Private Exchanges again?
• Status of E-Procurement
• Flaws of e-Marketplaces and CSFs

3
Objectives of B2B EC

• Assist the inter-enterprise commerce and
  interactions
• Reduce transaction cost and enhance efficiency
• Reduce time to search
• Cut the purchase cost
• Reduce inventory and production cycle time
• Share knowledge between partners
• Streamline the supply chain
• Satisfy and help the buyers
• Reduce cycle time for new product development
• Reduce the cost of implementing B2B interactions
• Hardware and software
• Development and maintenance cost
• Integration with inside corporate information
  systems

4
Solutions for B2B EC

• EDI and Internet EDI
• Join E-Marketplaces
• Competitive Purchase and Reverse Auction
• Supply Chain Management Systems
• Collaborative Forecasting
• Business Process Re-engineering and ERP
• CRM System
• Collaborative Development
• Use Application Service Provider
• Enterprise Application Integration

5
Mapping Goals with Solutions

• Assist the inter-enterprise commerce interactions
• Reduce transaction cost and enhance efficiency
• Reduce time to search
• Cut the purchase cost
• Reduce inventory and production cycle time
• Share knowledge between partners
• Streamline the supply chain
• Satisfy and help the buyers
• Reduce cycle time for new product development
• Reduce the cost of implementing B2B interactions
• Hardware and software
• Development and maintenance cost
• Integration with inside corporate information
  systems

• EDI

e-marketplace
Competitive purchase auction
SCM
Collaborative Forecast, e-Hub
SCM, BRP, ERP
CRM
C-Commerce
ASP
ASP
ERP, EAI
6
Factors in B2B EC Planning E-Marketplace
Perspectives

• Ownership of e-Marketplace
• Independent, Consortia, Private
• Public, Private (or Proprietary)
• Who keeps the data? Centric View.
• Third party, Buyers, Sellers
• Role of e-Hub
• Exchange, SCM, ASP
• Commerce, Collaboration
• Number of Buyers and Sellers
• Small Buyers Buyer-Centric
• Small Sellers Seller-Centric
• Many-to-Many Neutral
• Direction of Integration
• Vertical, Horizontal (MRO)

7
Dynamics in Three Types of Exchanges (InternetWee
k, March 13, 2001)

• Public Exchanges Independent e-MP Consortia
• Private Exchanges
• Independent Exchange
• Spot market e.g. Partminers FreeradeZone.com
• Not worked well
• Changing biz model to Supply Chain Enabler or
  software plays
• Be careful to partner with them

8
Dynamics in Three Types of Exchanges
(II) (InternetWeek, March 13, 2001)

• Industry Consortia
• None are likely to grow into huge spot markets or
  become a font of cost-saving reverse auctions
• Benefit Created industry standards
• Wait-and-see if the consortia supply chain ASP
  services offer enough value to win widespread use
• Private Exchange
• Not a new supply chain
• Attend to the companies needs
• Apply to the companies most crucial business
  problems
• Between 2 3 partners
• Started mostly in 2001

9
Factors in B2B EC Planning E-Marketplace
Perspectives

• Pricing Scheme
• Posted price, Negotiation, Auction, Reverse
  Auction
• Disintermediation
• Skip the intermediary, Assist the intermediary
• Direction of Aggregation
• Forward Aggregation, Reverse Aggregation
• Standardization of Products
• Commodity, Custom-made
• E-Catalog, Configured Specification

10
Factors in B2B EC PlanningBuyers Perspective

• Products to buy
• Direct Goods, Indirect Goods
• Purchase Channels
• Online, Offline, OnOffline
• Purchase Partnership
• Partners, Spot (anonymous)
• Existing or New Suppliers
• Efficiency with existing suppliers,
• Discovering new suppliers
• Thrust
• Price down, Inventory reduction
• Integration Strategy
• Inside-out, Outside-in

11
Purchasing Items and Types

• Purchasing Items

Indirect Direct (Horizontal) (
Vertical)
MRO Hubs Ariba W.W. Grainger MRO.com BizBuyer.
com
Catalog Hubs Chemdex SciQuest.com PlasticsNet.c
om VerticalNet BuildDirect
SYSMATIC SPOT
Procurement Type
Yield Managers Employease Adauction.com Capac
ityWeb
Exchanges e-Steel PaperExchange.com Altra
Energy IMX Exchange
(Source S. Kaplan and M. Sawhney)
12
Direct vs. Indirect Online Purchases

• Percentage of Direct vs. Indirect Purchase
• (Source NAPM/Forrester 2001)
• Indirect Goods 70.9 (up from 61.3 in the
  previous Q)
• had purchased indirect goods online
• Direct Goods 45.7 had purchased online
• More Indirect Goods Purchased Online

13
Exchange with Existing vs. New Suppliers

• Existing suppliers with established trust
• 85 of online B2B transactions
• 95 of offline B2B transactions
• New Suppliers
• Assist finding vendors
• Small but will grow
• Focus only one market (Jupiter)

14
Number of Buyers and Sellers
Number of Buyers Small Large
Small Large Number of Sellers
Point-to-Point
Purchasing e-Hub (Reverse Aggregator)
Selling e-Hub (Forward Aggregator)
Neutral e-Hub (Catalog hub, Exchange)
15
Public vs. Private e-Marketplace

• Private e-Marketplace means
• Buyer owned
• Buyers keep data
• Small number of partners
• Vertical integration with partners
• Price negotiation and possibly reverse auction
• Direct materials
• With existing suppliers
• Thrust Inventory reduction
• Tight integration with internal information
  systems
• What else contingencies?

16
B2B EC Architecture C1 Case
Global Trading Web
BuySite
Seller
xCBL
Market.net
xCBL
Seller
BuySite
xCBL
xCBL
xCBL
xCBL
BuySite
Seller
MarketSite
BuySite6.0 -Enterprise Edition -Portal
Edition -Content Management
Auction Service Purchasing Card
Fire Wall
17
Global Trading Web Vision?

• The world's largest business-to-business trading
  community
• Comprised of many interoperating portals
• unprecedented economies of scale for buying
  organizations, suppliers, and service providers
  worldwide.
• Each portal is independently owned and operated
  by a leading market makers in a region or
  industry.

18
Buyers Trading Community Environment
BuySite
Customers Corporate Buyer
MarketSite
Suppliers
Web Browser
Supply Order
BuySite
Web Browser
Commerce One Transaction Servers
Print
Web Browser
Web Server
Fax
Fax
User
Email
EDI Format
Customers Firewall
19
Buy Site
Selection/ Quotation/Approval/Order/Delivery/Payme
nt
Goods
Services
Travel
Expense
Workflow - Routing Approval
Business Rules Architecture
20
Partnership of Commerce One
21
Ariba Service Architecture
22
Ariba B2B Commerce Platform

• Ariba B2B Commerce Platform offers a single
  system for managing all buying, selling and
  marketplace commerce processes

• Ariba B2B Commerce Platform offers a single
  system for managing all buying, selling and
  marketplace commerce processes
• Ariba B2B Commerce Applications include a core
  set of master components B2B Procurement, B2B
  Marketplace, B2B Dynamic Trade and B2B
  Collaborative Commerce
• Ariba B2B Commerce Services include a broad set
  of network-based solutions that enable customers
  to accelerate their deployment while increasing
  the breadth and scope of their solution

? ? ?
23
Aribas Business Scope and Partners
24
Evaluation on Industry Trading Exchanges(AMR,
April 18, 2001)

• Independent consortia are hitting resistance
  and indifference.
• 2001 is a make or break year
• Survey on 1400 people in 10 specific verticals
• Criteria of Evaluation
• Consistency of strategic vision
• Depth of industry expertise
• Ability to create liquidity
• Level of functionality

25
Evaluation on Industry Trading Exchanges (II)

• Key Findings
• Exchanges aimed to build liquidity by
  streamlining the current business process
• Companies engaged with various public exchanges
  are also building their own private trading
  exchange.
• Trading exchanges need to provide management as
  well as technology consulting
• Exchanges
• - Evolve
• - Change business models
• - Form partnership to extend into new market or
  address more business process.

26
Top Industry Trading Exchanges

• Aerospace and Defense Exostar
• By BAE Systems, Boeing, Lockheed Martin, and
  Raytheon
• Automotive and Heavy Equipment Covisint
• Ford, GM, and Daimler Chrysler
• Chemical and Plastics Chematch
• Independent exchange
• Consumer Products Transora
• 250 mil investment by 55 members
• High-Tech and Electronics Converge
• HP, Compaq, etc.
• Combination of online and offline
• Purchased NECX for offline business

27
From ANX to Covisint(Automotive Network Exchange)

• GM, Ford, Chrysler and 30 suppliers, Dealers,
  Experimental Extranet (1997) 300 supplier (1998)
• Eventually 30,000 participants expected
• Information to Exchanges EDI(Order, Delivery),
  E-Mail, Groupware, CAD, e-Payment, etc.
• Goal of Cost Down 1Billion/Year for Industry,
  71/car
• Standard Protocol ANX-Certificate (IPSec
  Protocol)
• Ameritech, Bell Canada, EDS, MCI
  get the certificate.
• Solution and Service Business ANX eBusiness
  anx.com

28
Automobile Industry and Covisint

• GM
• Joint Venture with CommerceOne
• Announced TradeXchange Private Exchange
  Policy.
• Goal of Cost Reduction 100/trx ? 10/trx
• Goal Purchase Cycle time 16 weeks ? few hours,
• 2 days
• Ford
• Joint venture with Oracle Announced AutoXchange
• Planned Public Exchange policy
• Merger TX and AX ? Covisint
• Do they still need private exchanges?

29
Top Industry Trading Exchanges (II)

• Metal e-Steel
• US Steel, Ford, and steel makers
• Commodity trading
• Offer private trading service too
• Oil Gas FuelQuest
• Changed to technology provider
• Paper Paper Exchange
• 20-fold volume increase
• 575 transaction increase for 2000
• Retail GlobalNeteXchange (GNX)
• Sears, Whos who in retailing
• Support collaborative forecasting vs.
  RetailLinkWal-Mart
• Utilities Altra Energy Technology
• Profitable
• 1 Bil of transactions a month

30
Collaborative Forecasting and Replenishment
Wal-Mart
SupplierWarner-Lambert
Operational System
EDI
ERP
Data warehouse
Internet
Manufacturing Plan
RetailLink
Sales data about W-L Products
WWW
Review and Comments
Inventory Plan
Forecast
Planner
Planner
31
Best B2B Web Sites by Category(NetMarketing 200
www.netb2b.com/netmarketing200)

• 14 Industries Out of 800 B2B web sites
• Scored Criteria
• Quality and Presentation of the Information
• Ease of Navigation
• Design
• E-Commerce
• Place an order
• Access to account information
• Customer Support
• Pricing, Deliver and Return Information offer
• Extra
• Community
• Calculator
• E-mail newsletter

32
Best B2B Web Sites by Category (II)

• Industries and Winners
• Agriculture/Food Processing Sysco
• AutomotiveArvin Meritor, General Motors Corp
• Business and Professional Service Accenture
• Construction/ Construction Equipment Armstrong
  Holdings
• Energy and Power Consolidated Edison Inc.
• Financial Services and Insurance American
  Express, Merrill Lynch Wells Fargo
• Health Care/ Pharmaceutical Allegiance
  Healthcare
• Manufacturing - High-tech 3Com Apple Computer
  IBM Dell
• Manufacturing- Industrial Alcoa
• Petroleum, Chemicals and Mining Air Products
  Chemicals
• Software Microsoft
• Telecom Service Sprint, ATT
• Transportation and ShippingAPL
• Wholesale/Retail/DistributorCDW Computer
  Centers OfficeMax

33
Why Private Exchanges?

• Public Exchanges
• Just 16 of professional buyers have joined the
  third party exchanges by early 2001.
• Only 22 plans to use one in the future 20 by
  2002
• 50 of procurement agents see so little
  advantages
• Reason Their existing suppliers are not there
  yet.
• More interested in automating existing trade
  patterns
• Private (or Proprietary) Exchanges
• Invitation Only
• Forge close relationship with key buyers, like
  partnership
• Deeper integration of e-biz systems and process
  with partners
• Company can control the kind of business to carry
  out
• Everything can be branded

34
An Architecture of Private Exchange
35
Coexistence of Public and Private Exchanges

• Many public marketplaces also offer private
  exchange service to key customers
• PrintNation.com for PIP Printing Inc.s 450
  franchises
• Daimler Chrysler AG, Toyata Motor Corp., and
  Volks Wagen agreed to build private exchange.
• Feature of Private Trade eXange similar to
  public exchange
• Catalog, auctions, supply chain tools
• Blurring boundary What is not too public?
• Coexistence Strategy
• Public Non-strategic MRO
• Private Buy, sell, collaborate the core
  business
• partner integration

36
Flaws of e-Marketplaces(InternetWeek, March 13,
2001)

• Inexperienced management teams
• Limited value added services such as payment and
  logistics
• Poor back-end integration with buyer/seller
  systems
• Fewer sellers
• Scared away by the fear of commoditization

37
Critical Success Factors of B2B
e-Marketplaces(McKinseyQ, Nov 3, 2000,
pp.174-183)

• Early liquidity
• The right owners
• The right governance
• Openness
• A full range of services

38
Buyers Considerations to Secure Successful
e-Marketplaces(McKinsey Q, Nov 3, 2001)

• Managing Change
• Finding the right partners
• Experience
• Integration
• Service
• Ownership
• Technology
• Suppliers
• Cost
• Buyers

39
B2B Markethttp//www.btobonline.com/cgi-bin/artic
le.pl?id8756 March 5, 2002

• Global B2B EC will total 823.4 Bil in 2002
• Online 2 of US B2B in 2001
• 2004, 2.4 trillion eMarketer predict
• In 2001, 2,200 eMarketplaces worldwide
• Only 11 have fully implemented e-business
  strategy
• Top spending in e-business managers
• Business analysis
• Content management
• CRM
• Own Private EDI based exchanges

40
Key Prospects in 2001 (AMP Research, Feb 13,
2001)

• A third of companies over 1 Bil will implement
  Private Trading eXchanges by 2005
• Consortia Trading eXchanges on shaky ground this
  year
• By 2002, 40 of ASP and 60 of broader ASP market
  will fail or be acquired.
• Enterprise Application Integration (EAI) top
  priority in 2001, to make it easier for customers
  to unify channels, process, and data.
• SCM market in expected to reach 7.8 Bil in 2001
  with Inventory Management, Order Fulfillment, and
  SC Planning.
• Retailers focus on B2B synchronization,
  collaboration, and enterprise integration and
  optimization.

41
Key Prospects in 2001(II)

• Enterprise Commerce Management (ECM) system
  emerging.
• Vertical business process collaboration
• External content integration with inside
• Product Lifecycle Management (PLT) grow rapidly
• Reduce time-to-market of new products
• PLT application license revenue grow more than
  50
• This means the Collaborative Commerce
• Out of 850 exchanges in July 2000, only 35(4)
  went out of business or merged
• More shake out expected
• 80 of exchange participants not used at all
  (InternetWeek, Feb 14, 2001)

42
Expenditure Plans on B2B EC (InternetWeek,
April 2, 2001)

• Spending on B2B technology is slowing as the
  economy stagnates
• InternetWeek Survey 300 companies
• of more spending than last year
• 72-77 in Jan 2001
• 49 in April 2001
• 75 of increased spending on EC as a percentage
  of total IT spending
• AMR Survey 100 companies with at least 500 mil
  in sales
• ComputerWorld, April 16, 2001
• Just 23 plan to increase EC spending
• But 87 plan to keep or increase EC spending in
  areas to win and keep customers, streamline SC
  activities, and B2B e-MP.
• 94 plan to increase their investment on B2B
  exchange projects

43
Expenditure Plans for B2B EC (II)

• Aggressive Industries (Goldman Sachs Survey,
• 454 companies in 15 industries)
• Computers, semiconductors, autos, and consumer
  packaged goods
• Focus Supply chain automation e-MP
• Tight integration with suppliers and
  buyers
• Laggard Industries Managed care and
  pharmaceutical
• Simple Supply Chain more likely
• Fewer tiers of supply
• Relatively strong and direct contacts

44
Expenditure Plans for B2B EC (III)

• Toward proprietary e-MP rather than public to get
  proprietary data of plan to build private
  e-MP
• 60 of managed care
• 55 of financial companies
• But software vendors will struggle.
• Focus on its most profitable customers ? CRM
• 20 of customers 5 in financial industry
• Focus on near term economic benefit
• Slim inventory more efficient manufacturing
• Five Ps Profit, Profit, Profit, Profit, Profit
• Same Business Goals in Different Setting

45
Conclusive Summary

• Understanding the interactions between the
  factors and available solutions important to plan
  the B2B EC.
• Need to understand the difficulty of enterprise
  integration
• B2B Solution Prospects ERP II vs. ECM
• Need to understand what make the B2B EC
  successful.
• Portfolio of Private Exchange with Public
  Exchange important
• Targeting to Existing Suppliers important