Business to Business Exchange
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Overview
3 Case Studies
Best Practices
Conclusions
B2B Overview
Background
What are Business-to-Business Exchanges?
• Central, electronic marketplaces matching buyers & sellers
• One-to-Many model
How big of a player are they?
• Estimated U.S. revenues of $600 billion to $3 trillion by
2003.
Journal of Internet Law, April 2002, v5, p.10, “B2B Exchanges: Lesson from the Trading Pit”, Stephen J. Davidson, Daniel M. Bryant.
B2B Overview
Background
How big of a player are they?
B2B Overview
Background
How big of a player are they?
B2B Overview
Background
How big of a player are they?
B2B Overview
Types of B2B
What are the types of exchanges?
Generally there are two types.
• Horizontal
• Vertical
B2B Overview
Types of B2B
Horizontal:
o Provide products and services that are non-specific to a
particular industry.
o Benefits: variety of products offered and lower prices.
o Examples: office supplies, travel services.
Vertical:
o Provide products and services specific to a particular
industry.
o Benefits: provide specialized products, in-depth industry
knowledge, and greater opportunity for collaboration.
o Examples: aerospace, automotive.
Information Systems Management, Spring 2001, Vol. 18, Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.
B2B Overview
Types of B2B
B2B Overview
B2B Process
Conventional Process (Old Way)
Bidding Sequence
Buyer
RFP
Supplier
Bid
Proposal Acceptance
Buyer
Accept
Selected
Supplier
Transaction Complete
Buyer
Goods Payment
Supplier
Information Systems Management, Spring 2001, Vol. 18. Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.
B2B Overview
B2B Process
Exchange Process (New Way)
RFPs submitted and bids made
Buyer 1: RFP
Buyer 2: RFP
Buyer 3: RFP
Supplier A Bid
EXCHANGE
Buyer 1: Best Bid
Buyer 1: Payment
EXCHANGE
Supplier B Bid
Supplier C Bid
Supplier C: Payment
less commission
Information Systems Management, Spring 2001, Vol. 18. Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.
Business to Business Exchange
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•
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Overview
3 Case Studies
Best Practices
Conclusions
PetroCosm Background
• Company Overview
– B2B online exchange for the oil and gas
industries – Launched on January 19, 2000
– Goods and Services offered on the exchange
• Players Involved in the Exchange
• How was PetroCosm funded?
– Chevron, Crosspoint, and Texaco
www.rigzone.com
www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000
PetroCosm Background
“Our goal is to establish a truly independent,
neutral market that ensures the interests of
both buyers and sellers equally, while also
addressing the needs of an international
business.”
– Norman Chambers (CEO)
www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000
Product & Service Solutions
• Procurement, auctions, consulting,
community integrations, web/application
services, and business process and customer
relations management tools
• How did PetroCosm make money?
www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000
Participants
Chevron—Major Contributor
• Chevron’s e-procurement program – prior
• David Clementz – Chevron’s IT President
– Target of Chevron
• Expectations of Chevron
– Access more suppliers and business units
– Cut costs of materials and services by $200
million
www.eyeforenergy.com “The Premier E-Business for Energy”, Brian Davis.
Participants
Technology Partners
• Ariba Inc.
– Software developer and e-commerce provider
• Requisite Technology
– Provided the content management system
(Online Catalog – 800,000 units in 6 months)
– Search engine – “Bugseye”
www.business2.com “PetroCosm E-Catalog Offers 1 Million Items For Oil & Gas Industries”, February, 2001
Participants
Technology Partners
• BuzzPower e-community
– Owned by Multex.com, BuzzPower provided
community messaging and collaboration for
the exchange.
– Allowed members to participate in
discussions with other buyers and sellers on
a wide range of topics.
http://industry.java.sun.com “PetroCosm Selects Multex.com’s BuzzPower E-Community Software for New Digital Exchange”,
August, 2000
Participants
Technology Partners
• KPMG Consulting and eValuation
– Return on Investment Model
– Convince customers to use the system
– Variables used in the model
• Results of the model
– Save 5 to 20 percent of procurement costs
http://proquest.umi.com “Services Calculated Net ROI”, August, 2000
Case Study Conclusions
PetroCosm Strengths
• Operational Efficiency
• Buyer Advantage
– Reduce costs, faster transactions, and closer customer
relationships
– Negotiation power
– Level playing field for companies of all sizes
• Seller Advantage
– Expand consumer base, develop new markets, and
reduce costs
www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil & Gas Industry”, July, 2000
Case Study Conclusions
PetroCosm Weaknesses
• Sellers (suppliers) did not see significant
benefit from the exchange
– The systems are too focused on the buyer – too
many sellers compared to buyers
– The value and volume of the majority of the
deals was low
– Reverse auctions are timely and expensive to
set up – Benefit the buyer
http://lexis-nexis.com “E-Rethink Time as PetroCosm Partners Lick their Wounds”, July, 2001
Case Study Conclusions
Why did PetroCosm Fail?
• PetroCosm’s financial position at breakup
– $86 million in debt / $24 million in assets
– CH 11 bankruptcy was filed on June 14, 2001
• Too much confidence in technology
– Focused solely on R&D
– Needed to be more customer oriented
www.line56.com “PetroCosm Folds”, April, 2001
http://news.com.com “Chevron-Backed Net Exchange Shuts Down”, April, 2001
Case Study Conclusions
Why did PetroCosm Fail?
• Competitive pressures
– Trade-Ranger – Another B2B online oil exchange
– Exchange had more buyers (14 at PetroCosm’s
breakup)
• Lack of Confidence From Investors
– Lack of liquidity
– Chevron and Texaco – only two major buyers
– Dot-com Collapse – 2000
www.thestandard.com “Failed Marketplaces, Not Deterring Businesses”, May, 2001
UBS Warburg Background
• Wholesale energy trading based out of
Houston, TX
– Natural Gas
– Power Products
UBS Warburg Background
• Founded in February 2002 by UBS AG
• One of the worlds largest and best
capitalized banks
• Based in Switzerland
• Approx. 70,000 employees in 40 countries
• AA+ Standard & Poor’s long-term debt
rating
www.ubswenergy.com
UBS Warburg Background
Acquisition Terms
• Through Enron with a 10 year profit
sharing plan
• Acquired over 600 of Enron's employees
and many executives
• Rights to patents, licenses, office space,
and IT infrastructure
www.ubswarburg.com
Enron Failed!!!
“Enron failed because they were scamming,
but the basic virtual market part was fine.”
“There is still a real market for virtual
trading companies, no question about it.”
Dale Kutnick
Chief Executive and Research Director
META Group (an information tech. consultancy)
http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm
Business Model
• Principle in every transaction
• Spread between sell and buy
Jennifer Walker, spokesperson for UBS Warburg, interviewed by phone by David Seevers, October 17,2002.
Technology
• Internet (www.ubswenergy.com)
• Phone
• Fax
Case Study Conclusion
“In any commodity, there are always people
who have too much and others that have too
little, so there’s always going to be a need
for them to trade and exchange,”
Professor Tufano
http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm
Case Study Conclusions
Was UBS Energy a Success?
UBS Energy Weaknesses
• Slow start due to Enron link
• Industry downturn
– Down 70% from a year ago
• Federal Investigations (trading practices)
• Over 130 employees laid off recently
• Competition
http://www.platts.com/pressroom/wsj819.shtml
Case Study Conclusions
UBS Energy Strengths
• Reputation
– Highly regarded parent company
• No capital investment required
• Systems acquired from Enron
Covisint Background
• Conception:
– February, 2000;
First Transaction in October, 2000
• Membership:
– Open to entire automotive industry
• Vision:
– To use the Internet to increase value & efficiency to all
suppliers and OEM’s through collaboration, visibility, &
integration.
www.covisint.com
Covisint
Background
Co-Collaboration
Vis-Visibility
Int-Integration
www.covisint.com
Participants
• OEM Founders:
•Supplier Participants: approx. 5000
www.covisint.com
Participants
• Technology Partners: (with an equity stake)
• Technology Providers:
www.covisint.com
Product & Service Solutions
Product Life Cycle
www.covisint.com
Product Development Solutions
• Collaboration enabled by Virtual Project
Workspace
– Facilitates communication between suppliers &
OEM’s
• Benefits
– Decreases product development time
– Decreases design costs
– Shortens sourcing process
www.covisint.com
C. Koch, “Motorcity Shakeup” Darwin, Jan 2002
Procurement Solutions
• Quote Manager:
– Electronic RFQ process
– Benefits: reduction in costs, delays, & errors
• Custom Catalogs:
– Electronic availability of products
– Benefits:
• 73% reduction in transaction costs
• 74% reduction in processing time
• Nearly 100% order accuracy
www.covisint.com
Procurement Solutions
• Asset Control
– Re-allocation and buying/selling resources
– Benefits: Allows user to identify, appraise,
categorize, track, re-deploy, & sell assets
• Buyer Auctions
– Enables one-to-many negotiations
– Benefits:
www.covisint.com
• 72% process reduction
• 5-30% price savings
• 400% average ROI
Procurement Solutions
Buyer Auction
www.covisint.com
Supply Chain Solutions
• Enables inventory visibility & information flow
between suppliers and OEM’s
• Benefits:
–
–
–
–
www.covisint.com
30-70% reductions in inventories
50-90% savings in premium freight costs
40-80% reduction in administrative costs
50-80% reduction in downtime
Business Model
• Standard pricing for each product/service
– Product DevelopmentSubscription Fees
– Procurement Services  Per Event Fees
– Supply Chain  Commission Fees
 Subscription Fees
www.covisint.com
Case Study Conclusions
Is Covisint a Success?
• $65 million in revenues
(2001)
• Predict profit by 2003
• 15-25% of OEM
purchases
• 5000 participants
• Ranked 5th by InfoWorld for use of creative
technologies to generate revenue
U. Balasubramanian, M. Diab, K. Mabry, D. Moore, “Information Visibility Nondifferentiated Products” Marketing News, 2002.
D. Arminas, “The Mother of E-Marketplaces: Will It Pass the Test?” Supply Management, May 2002.
Case Study Conclusions
Is Covisint a Success?
“Many people said it would never be possible to procure
complex parts over Covisint, but we have proved that it not
only is possible, but that we can save a great deal of time and
money doing so.”
Wolfgang Scheunemann, DaimlerChrysler
U. Balasubramanian, M. Diab, K. Mabry, D. Moore. “Information Visibility Nondifferentiated Products”Marketing News, 2002
Case Study Conclusions
• Covisint Strengths
– Support from Big 3 OEM’s
– Common system: same to deal with all OEM’s
• Covisint Weaknesses
– Support from suppliers
– Anti-trust hurdles
– Competition
T. Murphy, “New CEO: No More Cash for Covisint” Ward’s Auto World, Aug 2002.
D. Arminas, “The Mother of E-Marketplaces: Will It Pass the Test?” Supply Management, May 2002.
Business to Business Exchange
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•
•
•
Overview
3 Case Studies
Best Practices
Conclusions
B2B Best Practices –
What Experts Say
“Efficiency and Customer
Retention are still the key”
- David Yockelson and Aaron Zornes
Source : B2B supply chain best practices in ZDNet
B2B Best Practices –
What Experts Say (Continued)
. According to Rathin Sinha , Dir of E-Com at Kinko’s
Source : http://www.anderson.ucla.edu/research/cmie/images/Sinha.pdf
. B2B leaders should integrate their Business process
to develop synchronized solutions.
According to John MacDuffie and Susan Helper , Professors
of Management
. B2B will be "evolutionary" rather than
"revolutionary"
B2B Best Practices – Research
Five potential sources of performance improvement
Research by John Paul MacDuffie, prof. at Wharton Management and
Susan Helper, prof. of economics at Case Western Reserve University
1.
Automate the procurement process
– Reduction in Paperwork always reduces Costs
2.
Increase Interoperability
– Facilitate Easy communication by using XML, a computer
language for EDI
Source : The Evolution B2B from Knowledge@Wharton
Upcoming book “The Global Internet Economy”
B2B Best Practices – Research
(Continued)
3.
Use Auctions : Online auctions have a tremendous potential to
reduce prices, as large numbers of suppliers compete for contracts.
4.
Collaborative planning : Major savings can be achieved if
plants in the supply chain can quickly view each others' inventory
levels and production schedule and plan accordingly.
5.
Collaborative design : Address the difficulties in linking
proprietary software in different companies allowing Designers to
work concurrently.
B2B Best Practices –
Exchange Types
• Consider Which Exchange Type is better for your business
PUBLIC OR PRIVATE ?
PUBLIC EXCHANGE :
Industry specific Exchange for companies with similar interests
and business goals. Examples : Covisint, Petrocosm
PRIVATE EXCHANGE :
Invitation-only networks that connect a single company to its
customers, suppliers, or both.
Examples : Walmart’s RetailLink, Dow Chemical
B2B Best Practices –
Exchange Types
• Public Exchanges
– Good Avenue to find low prices
– Identify new customers
– Unload Excess Inventory
• Private Exchanges
– Keeps control in the hands of an active participants
– Provides secure, one-on-one communication
– Enhances shared supply chain processes
B2B Best Practices –
Exchange Types
• If Participating in a Private Exchange,
BUILD or JOIN ?
• Decision based on Supply Chain Power Vs Online Capabilities
desired.
Supply Chain
Power
High
Launch
Enterprise
Portal
Build
Private
Exchange
Low
Choose
Intermediary
Join
Customer’s
Exchange
High
Low
Capabilities for online Interaction
Source : The Unexpected return of B2B from McKinsey Quarterly
B2B Best Practices - Strategies
• Use deep industry knowledge
– Freemarkets , for example, supplies coal companies with
algorithms for companies to evaluate different Coal Types
• Provide value added services that facilitate transactions
– such as helping with shipping heavy equipment
• Let customers decide how to use its technology
– whether in public auctions or private supply chains.
Source : Hal Varian of the School of Information Management and Systems at U.C, Berkeley.
B2B Best Practices –
Technological Strategies
USE INNOVATIVE IDEAS AND NEW TECHNOLOGY
• Dynamic Pricing
- Automatically reduce or increase the price based on
response
• Negotiation Technology
- Allow the Buyer and the Seller to negotiate more
efficiently
• P2P and Live Broadcasting
– Brings Buyers and Sellers closer
B2B Best Practices - Winners
Winners of B2B E-Commerce Awards @
Technology Managers Forum.
2001 : Prudential U.S. Consumer Group
– single platform from which to stage all the business
processes
2000 : GE Aircraft Engines with Enigma & Spaceworks
– Repair instead of Replace Model by coupling parts
inventory with required engineering
Source: www.techforum.com
Business to Business Exchange
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•
Overview
3 Case Studies
Best Practices
Conclusions
Conclusions
B2B Considerations
• Competitive advantage
• Highly efficient
– One-to-Many vs. One-to-One
• Increased buying power for critical commodities
• Opens up new markets to suppliers
Information Systems Management, Spring 2001, Vol. 18, Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.
Conclusions
B2B Considerations
• Large # of transactions required to realize savings
• Risk of Exchange Failure
• Sufficient number of buyers and sellers required
for successful exchange
• Anti-Trust considerations
Information Systems Management, Spring 2001, Vol. 18, Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.
B2B Best Practices
Conclusions
B2B Conclusions
Case Study Comparison
PetroCosm
UBS Warburg
Covisint
YES
Buyer Benefits
YES
YES
Supplier Benefits
NO
YES
Buyer Costs
Transaction Fees
None
Supplier Costs
Transaction Fees
Transaction Fees
?
Subscription &
per event fees
Subscription &
commission fees
Type of Exchange
Vertical
Vertical
Vertical
Public vs.Private
Public
Public
Public
Successful
NO
Too Early
YES
Business to Business Exchange
• Overview
• 3 Case Studies
• Conclusions & Best Practices
Questions?