Copyright © 2002 Pearson Education, Inc.
Slide 12-1
CHAPTER 12
B2B E-commerce: Supply Chain
Management and Collaborative
Commerce
Created by, David Zolzer, Northwestern State University—Louisiana
Copyright © 2002 Pearson Education, Inc.
Slide 12-2
Learning Objectives

Define B2B commerce and understand its
scope and history
 Understand the procurement process, the
supply chain, and collaborative commerce
 Identify the main types of B2B commerce:
Net marketplaces and private industrial
networks
Copyright © 2002 Pearson Education, Inc.
Slide 12-3
Learning Objectives

Understand the four types of Net
marketplaces
 Identify the major trends in the
development of Net marketplaces
 Identify the role of private industrial
networks in transforming the supply chain
 Understand the role of private industrial
networks in supporting collaborative
commerce
Copyright © 2002 Pearson Education, Inc.
Slide 12-4
Defining the Growth of B2B
Commerce

Total inter-firm trade is the total flow of
value among firms
 B2B commerce describes all types of
computer-enabled inter-firm trade
 Internet-based B2B commerce is that
portion of B2B commerce that is enabled
by the Internet
Copyright © 2002 Pearson Education, Inc.
Slide 12-5
The Evolution of B2B
Commerce

Automated order entry systems involve
the use of telephone modems to send
digital orders
 Seller-side solutions are seller-biased
markets that are owned by, and show only
goods from, a single seller
Copyright © 2002 Pearson Education, Inc.
Slide 12-6
The Evolution of B2B
Commerce
Page 655, Figure 12.1
Copyright © 2002 Pearson Education, Inc.
Slide 12-7
The Evolution of B2B
Commerce

Electronic Data Interchange (EDI) is a
communications standard for sharing
business documents and settlement
information among a small number of
firms
 Buyer-side solutions are buyer-biased
markets that are owned by buyers and aim
to reduce the procurement costs of
supplies for buyers
Copyright © 2002 Pearson Education, Inc.
Slide 12-8
Evolution of B2B Commerce

Hub-and-spoke system refers to systems
like EDI with the buyers in the center and
the suppliers connected to the central hub
via private dedicated networks
 A vertical market is one that provides
expertise and products for a specific
industry
 Horizontal markets refer to markets that
serve many different industries
Copyright © 2002 Pearson Education, Inc.
Slide 12-9
Evolution of B2B Commerce



B2B electronic storefronts are simply online
catalogs of products made available to the public
marketplace by a single supplier
Net marketplaces bring hundreds of suppliers
into a single Internet-based environment to
conduct trade
Private industrial networks are Internet-based
communication environments that extend far
beyond procurement to encompass truly
collaborative commerce
Copyright © 2002 Pearson Education, Inc.
Slide 12-10
The Growth of B2B Commerce
Page 657, Figure 12.2
Copyright © 2002 Pearson Education, Inc.
Slide 12-11
Industry Forecasts for Internet-Based
B2B Commerce
Page 659, Figure 12.3
Copyright © 2002 Pearson Education, Inc.
Slide 12-12
Potential Benefits of B2B ECommerce

Lower administration costs
 Lower search costs for buyers
 Reduce inventory costs by increasing
competition among suppliers and
reducing inventory to the bare minimum
 Lower transaction costs by eliminating
paperwork and automating parts of the
procurement process
Copyright © 2002 Pearson Education, Inc.
Slide 12-13
Potential Benefits of B2B ECommerce

Increase production flexibility by ensuring
delivery of parts “just in time”
 Improve quality of products by increasing
cooperation among buyers and sellers
and reducing quality issues
 Decrease product cycle time by sharing
designs and production schedules with
suppliers
Copyright © 2002 Pearson Education, Inc.
Slide 12-14
Potential Benefits of B2B ECommerce

Increase opportunities for collaborating
with suppliers and distributors
 Create greater price transparency -- the
ability to see the actual buy and sell prices
in a market
Copyright © 2002 Pearson Education, Inc.
Slide 12-15
Procurement Process

The way business firms purchase the
goods they need in order to produce the
goods they will ultimately sell consumers
 Firms purchase goods from a set of
suppliers who in turn purchase their
inputs from a set of suppliers
 These firms are linked in a series of
connected transactions
Copyright © 2002 Pearson Education, Inc.
Slide 12-16
Supply Chain

The series of transactions that links sets
of firms that do business with each other
 It includes not only the firms themselves
but also the relationship between them
and the processes that connect them
Copyright © 2002 Pearson Education, Inc.
Slide 12-17
Procurement Process: Seven
Steps

Searching for suppliers for specific
products
 Qualifying the sellers and the products
they sell
 negotiating prices, credit terms, escrow
requirements, and quality requirements
Copyright © 2002 Pearson Education, Inc.
Slide 12-18
Procurement Process: Seven
Steps

Scheduling delivery
 Issuing purchase orders
 Sending invoices
 Shipping the product
Copyright © 2002 Pearson Education, Inc.
Slide 12-19
The Procurement Process
Page 660, Figure 12.4
Copyright © 2002 Pearson Education, Inc.
Slide 12-20
Types of Procurement

Purchases of direct goods -- goods that
are directly involved in the production
process
 Purchases of indirect goods -- goods
needed to carry out the production
process but that are not directly involved
in creating the end product. Often called
MRO goods -- maintenance, repair, and
operations
Copyright © 2002 Pearson Education, Inc.
Slide 12-21
Types of Procurement

Contract purchases -- long-term
agreements to buy a specified amount of a
product. There are pre-specified quality
requirements and pre-specified terms
 Spot purchases -- for goods that meet the
immediate needs of a firm. Indirect
purchases are most often made on a spot
purchase basis in a large marketplace that
includes many suppliers
Copyright © 2002 Pearson Education, Inc.
Slide 12-22
Direct Labor Involvement in the
Procurement Process
Page 662, Table 12.1
Copyright © 2002 Pearson Education, Inc.
Slide 12-23
Multi-tier Supply Chains

The complex series of transaction that
exists between a single firm with multiple
primary suppliers, the secondary
suppliers who do business with those
primary suppliers, and the tertiary
suppliers who do business with the
secondary suppliers
Copyright © 2002 Pearson Education, Inc.
Slide 12-24
The Multi-tier Supply Chain
Page 663, Figure 12.5
Copyright © 2002 Pearson Education, Inc.
Slide 12-25
Roles of Existing Legacy
Computer Systems

Legacy computer systems refer to
generally older mainframe and
minicomputer systems used to manage
key business processes within a firm in a
variety of functional areas
Copyright © 2002 Pearson Education, Inc.
Slide 12-26
Typical Legacy Systems

Materials Requirements Planning (MRP)
systems enable companies to predict,
track, and manage all the constituent parts
of complex manufactured goods
 Enterprise Resource Planning (ERP)
systems are more sophisticated MRP
systems that include human resource and
financial components
Copyright © 2002 Pearson Education, Inc.
Slide 12-27
Trends in Supply Chain
Management

Supply chain management (SCM) refers to
a wide variety of activities that firms and
industries use to coordinate the key
players in their procurement process
Copyright © 2002 Pearson Education, Inc.
Slide 12-28
Trends in Supply Chain
Management

Four major developments is supply chain
management set the ground rules for
understanding B2B e-commerce
 Supply Chain Simplification
 Electronic Data Interchange (EDI)
 Supply Chain Management Systems
 Collaborative commerce
Copyright © 2002 Pearson Education, Inc.
Slide 12-29
Supply Chain Simplification




The reduction of the size of a firm’s supply chain
Firms work closely with a strategic group of
suppliers to reduce product costs and
administrative costs
Long term contract purchases containing prespecified product quality requirements and prespecified timing goals
Shown to improve end product quality and
ensure uninterrupted production
Copyright © 2002 Pearson Education, Inc.
Slide 12-30
Electronic Data Interchange



Developed to reduce cost, delays, and errors
inherent in the manual exchanges of documents
such as purchase orders, shipping documents,
price lists, payments, and customer data
EDI differs from unstructured message because
its messages are organized with distinct field for
each of the important pieces of information
EDI industry committees define the structure and
information fields of electronic documents for
that industry
Copyright © 2002 Pearson Education, Inc.
Slide 12-31
The Evolution of EDI as a B2B
Medium
Page 666,
Figure 12.6
Copyright © 2002 Pearson Education, Inc.
Slide 12-32
Supply Chain Management
Systems

Coordinate and link the activities of
suppliers, shippers, and order entry
systems to automate the order entry
process from start to finish, including the
purchase, production, and moving of a
product from a supplier to a purchasing
firm
Copyright © 2002 Pearson Education, Inc.
Slide 12-33
Supply Management Systems
Page 668, Figure 12.7
Copyright © 2002 Pearson Education, Inc.
Slide 12-34
Collaborative Commerce

The use of digital technologies to permit
organizations to collaboratively design,
develop, build, and manage products
through their life cycles
Copyright © 2002 Pearson Education, Inc.
Slide 12-35
Elements of a Collaborative
Commerce System
Page 672, Figure 12.8
Copyright © 2002 Pearson Education, Inc.
Slide 12-36
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
 They can be owned be either the buyer or
the seller
 They can operate as independent
intermediaries between the buyer and
seller
Copyright © 2002 Pearson Education, Inc.
Slide 12-37
Main Types of Internet-based
B2B Commerce

Private industrial networks bring together
a small number of strategic business
partners who collaborate with one another
to develop highly efficient supply chains
and to satisfy customer demand for
product
 They are by far the largest form of B2B
commerce, presently comprising 93% of
the total computer-assisted inter-firm
trade
Copyright © 2002 Pearson Education, Inc.
Slide 12-38
Two Main Type of Internet-based
B2B Commerce
Page 673, Figure 12.9
Copyright © 2002 Pearson Education, Inc.
Slide 12-39
Projected Relative Size of Net Marketplaces
and Private Industrial Networks
Page 675, Figure 12.10
Copyright © 2002 Pearson Education, Inc.
Slide 12-40
Other Characteristics of Net
Marketplaces
Page 675, Table 12.2
Copyright © 2002 Pearson Education, Inc.
Slide 12-41
Pure Types of Net Marketplaces
Page 676, Figure 12.11
Copyright © 2002 Pearson Education, Inc.
Slide 12-42
Net Marketplaces:
E-distributors

Independently owned intermediaries that
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
Copyright © 2002 Pearson Education, Inc.
Slide 12-43
E-Distributors
Page 677, Figure 12.12
Copyright © 2002 Pearson Education, Inc.
Slide 12-44
Net Marketplaces:
E-procurement

Independently owned intermediaries connecting
hundreds of online suppliers offering millions of
MRO goods to business firms who pay a fee to
join the market
 Operate in a horizontal market in which long-term
contractual purchasing agreements are used to
buy indirect goods
 Provide value chain management services -include the automation of a firm’s entire
procurement process on the buyer side and the
automation of the selling business processes on
the seller side
Copyright © 2002 Pearson Education, Inc.
Slide 12-45
E-procurement Markets
Page 679, Figure 12.13
Copyright © 2002 Pearson Education, Inc.
Slide 12-46
E-commerce in Action: Ariba

Ariba provides and excellent example of
an e-procurement Net marketplace
 Ariba is a leading B2B software platform
and software provider
Copyright © 2002 Pearson Education, Inc.
Slide 12-47
E-commerce in Action: Ariba

Platform has four components:
 Ariba Buyer automates the procurement
business process within single firms
 Ariba Marketplace and Ariba Dynamic Trade
are software tools that permit users to
establish B2B marketplaces internally on their
corporate intranets, or externally on the public
Internet
 Ariba Commerce Services Network is an
Internet-based e-procurement Net marketplace
that aggregates catalogs of hundreds of
suppliers and provides corporate buyers with
a Web interface to Ariba procurement,
payment, and shipping support services
Copyright © 2002 Pearson Education, Inc.
Slide 12-48
Ariba’s E-distribution & Procurement
Net Marketplace
Page 680, 12.14
Copyright © 2002 Pearson Education, Inc.
Slide 12-49
Ariba’s Balance Sheet
Page 684, Table 12.3
Copyright © 2002 Pearson Education, Inc.
Slide 12-50
Net Marketplaces:
Exchanges

Independently owned online marketplaces
that 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-51
Exchanges
Page 688, Figure 12.15
Copyright © 2002 Pearson Education, Inc.
Slide 12-52
Some Exchanges
Page 689, Table 12.4
Copyright © 2002 Pearson Education, Inc.
Slide 12-53
E-commerce in Action:
FreeMarket Inc.



One of the leading B2B exchanges, generating
revenues of $83 million in 2000
Market-making services enable industrial buyers
of direct goods to find, screen, and qualify
suppliers, and then to negotiate prices and term
through a dynamic, real-time, comprehensive
bidding and auction process
Offers proprietary technology, technical support
facilities, market-making services, and access to
a global database of suppliers
Copyright © 2002 Pearson Education, Inc.
Slide 12-54
FreeMarkets’ Balance Sheet
Page 693, Table 12.5
Copyright © 2002 Pearson Education, Inc.
Slide 12-55
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
Copyright © 2002 Pearson Education, Inc.
Slide 12-56
Industry Consortia
Page 697, Figure 12.16
Copyright © 2002 Pearson Education, Inc.
Slide 12-57
Industry Consortia by Industry
Page 698, Table 12.6
Copyright © 2002 Pearson Education, Inc.
Slide 12-58
Market Mechanisms Used by
Industry Consortia
Page 699, Figure 12.17
Copyright © 2002 Pearson Education, Inc.
Slide 12-59
Long-term Dynamics of Net
Marketplaces

Independent exchanges were the
prototype Internet-based marketplace
 Several thousand created; however, most
of them did not succeed
 Main reason for failure is that they did not
attract enough players to achieve liquidity
Copyright © 2002 Pearson Education, Inc.
Slide 12-60
Long-term Dynamics of Net
Marketplaces


Industry consortia sprang up in 1999 and 200 in
reaction to earlier development of independently
owned exchanges that were viewed by large
industries as interlopers who would not directly
serve their needs
Industry consortia are profitable because they
charge the large buyer firms transaction and
subscription fees, but rationalization of the
procurement process, the competition among
vendors, and the closer relationship with the
vendors are benefits that more than offset the
cost of membership
Copyright © 2002 Pearson Education, Inc.
Slide 12-61
Long-term Dynamics of Net
Marketplaces

The failure of early exchanges is one Net
marketplaces are changing so rapidly
 Participants have come to realize the real
value of B2B commerce will only be
realized when it succeeds in changing the
entire procurement system, supply chain,
and the process of collaboration among
firms
Copyright © 2002 Pearson Education, Inc.
Slide 12-62
Net Marketplace Trend
Page 700, Figure 12.18
Copyright © 2002 Pearson Education, Inc.
Slide 12-63
Private Industrial Networks

Dominate B2B commerce
 Web-enabled networks for coordinating transorganizational business processes (collaborative
commerce)
 Range in scope from a single firm to an entire
industry
 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-64
Private Industrial Networks

Differentiates private industrial networks
from consortia that are 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-65
Proctor & Gamble’s Private
Industrial Network
Page 703, Figure 12.19
Copyright © 2002 Pearson Education, Inc.
Slide 12-66
Characteristics of Private
Industrial Networks

Developing efficient purchase and selling
business processes industry-wide
 Developing industry-wide resource
planning to supplement enterprise-wide
resource planning
 Creating increasing supply chain visibility
-- knowing the inventory levels of buyers
and sellers
Copyright © 2002 Pearson Education, Inc.
Slide 12-67
Characteristics of Private
Industrial Networks

Achieving closer buyer-supplier
relationships, including demand
forecasting, communications, and conflict
resolution
 Operating on a global scale -globalization
 Reducing industry risk by preventing
imbalances of supply and demand,
including developing financial derivatives,
insurance, and futures markets
Copyright © 2002 Pearson Education, Inc.
Slide 12-68
Private Industrial Networks &
Collaborative Commerce

CPFR or industry collaborative resource
planning, forecasting, and replenishment
involves 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-69
Private Industrial Networks &
Collaborative Commerce


Supply chain and distribution chain visibility
refers to the fact that in the past it was 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-70
Private Industrial Networks &
Collaborative Commerce



Marketing and product design collaboration can
be used to involve a firm’s suppliers in product
design and marketing activities as well as the
related activities of their supply and distribution
chain partners
This 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
Copyright © 2002 Pearson Education, Inc.
Slide 12-71
Pieces of the Collaborative
Commerce Puzzle
Page 705, Figure 12.20
Copyright © 2002 Pearson Education, Inc.
Slide 12-72
An Industry-wide Private Industrial
Network
Page 709, Figure 12.21
Copyright © 2002 Pearson Education, Inc.
Slide 12-73