Business to Business Exchange Overview 3 Case Studies Best Practices Conclusions.

Business to Business Exchange

•Overview

•3 Case Studies

•Best Practices

•Conclusions

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

BackgroundHow 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

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.

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.

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

Buyer RFP Supplier Bid

Buyer Accept Selected Supplier

Bidding Sequence

Proposal Acceptance

Transaction Complete

Conventional Process (Old Way)

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

Buyer 1: RFP

Buyer 2: RFP

Buyer 3: RFP

Supplier A Bid

Supplier B Bid

Supplier C Bid

Exchange Process (New Way)

RFPs submitted and bids made

EXCHANGE

Buyer 1: Best Bid

Buyer 1: PaymentSupplier C: Payment less commission

Information Systems Management, Spring 2001, Vol. 18. Iss. 2, pg. 54, “Business-to-Business Exchanges”, Marie Tumolo.

B2B Overview


•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)


Product & Service Solutions

• Procurement, auctions, consulting, community integrations, web/application services, and business process and customer relations management tools

• How did PetroCosm make money?


Participants

• 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.

Chevron—Major Contributor

Participants

• 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

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

Participants

Technology Partners

Case Study Conclusions

• 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


PetroCosm Strengths


• 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

PetroCosm Weaknesses

• 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


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


Why did PetroCosm Fail?

UBS Warburg Background

• Wholesale energy trading based out of Houston, TX– Natural Gas– Power Products

www.ubswenergy.com


• 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.ubswarburg.com

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


http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm

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)

Jennifer Walker, spokesperson for UBS Warburg, interviewed by phone by David Seevers, October 17,2002.

Business Model

• Principle in every transaction

• Spread between sell and buy

Technology

• Internet (www.ubswenergy.com)

• Phone

• Fax

http://www.kellogg.northwestern.edu/news/hits/020128nyt.htm

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.platts.com/pressroom/wsj819.shtml

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


Was UBS Energy a Success?

UBS Energy Strengths

• Reputation– Highly regarded parent company

• No capital investment required

• Systems acquired from Enron


Covisint Background

• Membership: – Open to entire automotive industry

• Conception: – February, 2000;

First Transaction in October, 2000

• Vision: – To use the Internet to increase value & efficiency to all

suppliers and OEM’s through collaboration, visibility, & integration.

www.covisint.com

Co-Collaboration Vis-Visibility Int-Integration

www.covisint.com

Covisint Background

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

www.covisint.com

Product Life Cycle

Ser

vice

Cat

egor

ies

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

• Custom Catalogs:– Electronic availability of products– Benefits:

• 73% reduction in transaction costs• 74% reduction in processing time• Nearly 100% order accuracy

• Quote Manager: – Electronic RFQ process– Benefits: reduction in costs, delays, & errors

www.covisint.com


• Buyer Auctions– Enables one-to-many negotiations– Benefits:

• 72% process reduction

• 5-30% price savings

• 400% average ROI

• Asset Control– Re-allocation and buying/selling resources– Benefits: Allows user to identify, appraise,

categorize, track, re-deploy, & sell assets

www.covisint.com


www.covisint.com

Buyer Auction

Supply Chain Solutions

• Enables inventory visibility & information flow between suppliers and OEM’s

www.covisint.com

• Benefits:– 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

– Procurement Services Per Event Fees

– Product DevelopmentSubscription Fees

– Supply Chain Commission Fees

Subscription Fees

www.covisint.com


• $65 million in revenues (2001)

• Ranked 5th by InfoWorld for use of creative technologies to generate revenue

Is Covisint a Success?

• 5000 participants

• 15-25% of OEM purchases

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.

• Predict profit by 2003


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


• 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.


•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

. 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"

Source : http://www.anderson.ucla.edu/research/cmie/images/Sinha.pdf

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 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

PUBLIC OR PRIVATE ?

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. High

Launch

Enterprise Portal

Build

Private Exchange

Supply Chain Power

Low

Choose

Intermediary

Join Customer’s Exchange

Low High

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

• 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

USE INNOVATIVE IDEAS AND NEW TECHNOLOGY

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


•Overview

•3 Case Studies

•Best Practices

•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

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

Conclusions


B2B Conclusions

Case Study Comparison

PetroCosm UBS Warburg Covisint

Buyer Benefits

Supplier Benefits

Buyer Costs

Supplier Costs

Type of Exchange

Public vs.Private

Successful NO YESToo Early

?NO YES

YESYESYES

Subscription & per event feesNoneTransaction Fees

PublicPublicPublic

B2B Best Practices

VerticalVerticalVertical

Conclusions

Subscription & commission fees

Transaction FeesTransaction Fees


•Overview

•3 Case Studies

•Conclusions & Best Practices

Questions?

Business to Business Exchange Overview 3 Case Studies Best Practices Conclusions.

Documents

business exchange overview

b2b exchanges

business exchanges

business process

b2b process exchange

types of b2b vertical

international business

types of exchanges