ONLINE FILE W4.1 Application Case CISCO SYSTEM’S CONNECTION ONLINE

Chapter Four: B2B E-Commerce 4-1

ONLINE FILE W4.1Application Case

CISCO SYSTEM’S CONNECTION ONLINECustomer ServiceCisco began providing electronic support to its business in1991 using value-added networks (VANs). The first applica-tions offered were software downloads, defects diagnoses, andtechnical advice. In spring 1994, Cisco moved its system tothe Web and named it Cisco Connection Online (CCO). (Not tobe confused with Cisco Learning connection, which is relatedto e-learning at Cisco, see Chapter 5.) By 2004, Cisco’scustomers and reseller partners were logging onto Cisco’swebsite over 2 million times a month to receive technicalassistance, place and check orders, or download software. Theonline service has been so well received that nearly 85 percentof all customer service inquiries and 95 percent of softwareupdates are delivered online. The service is delivered globallyin 16 languages. CCO is considered a model for B2B success,and several books have been written about it.

Online Ordering by CustomersVirtually all of Cisco’s B2B products are made to order. BeforeCCO, ordering a product was a lengthy, complicated, anderror-prone process because it was done by fax or by “snailmail.” Cisco began deploying Web-based commerce tools inJuly 1995, and within a year its Internet Product Centerallowed users to configure and purchase any Cisco productover the Web. Today, a business customer’s engineer can sitdown at a PC, configure a product, and find out immediatelyif there are any errors in the configuration (feedback is givenby intelligent agents).

By providing online pricing and configuration tools tocustomers, 99 percent of orders are now placed through CCO,saving time for both Cisco and its customers.

Tracking Order StatusEach month Cisco used to receive over hundreds of thousandsof order-status inquiries such as, “When will my order beready?” “How should the order be classified for customs?” “Isthe product eligible for NAFTA agreement?” “What exportcontrol issues apply?” Cisco provides self-tracking and FAQtools so that customers can find the answers to many of theirquestions by themselves. In addition, the company’s primarydomestic and international freight forwarders update Cisco’sdatabase electronically about the status of each shipment.CCO can record the shipping date, the method of shipment,and the current location of each product. All new informationis made available to customers immediately. As soon as anorder ships, Cisco notifies the customer via e-mail.

BenefitsCisco reaps many benefits from the CCO system. The mostimportant benefits include:

◗ Reduced operating costs for order taking. By taking itsorder process online, Cisco has saved several hundreddollars per year, or approximately 20 percent of its totaloperating costs. This is due primarily to increased produc-tivity of the employees who take and process orders.

◗ Improved quality. The system facilitates Cisco’s Six Sigmamission.

◗ Enhanced technical support and customer service. Withmore than 90 percent of its technical support and customerservice calls handled online, Cisco’s technical supportproductivity has increased by 250 percent per year.

◗ Reduced technical support staff cost. Online technicalsupport has reduced technical support staff costs byroughly $125 million each year.

◗ Reduced software distribution costs. Customersdownload new software releases directly from Cisco’s site,saving the company $180 million in distribution,packaging, and duplicating costs each year. Havingproduct and pricing information on the Web andWeb-based CD-ROMs saves Cisco an additional $50 millionannually in printing and distributing catalogs andmarketing materials to customers.

◗ Faster service. Lead times were reduced from 4 to 10 daysto 2 to 3 days.

The CCO system also benefits customers. Cisco customerscan configure orders more quickly, immediately determinecosts, and collaborate much more rapidly and effectively withCisco’s staff. Also, customer service and technical support arefaster.

In 2006, Cisco moved to selling online its hardware(routers, switches, and VoIP) and the software that powersthem separately. This unbundling gives customers moreflexibility (see Hoover 2006).

Questions1. List the capabilities of the Cisco Online system.

2. What are the benefits of the system to Cisco?

3. What are the benefits to Cisco’s customers?

REFERENCES FOR ONLINE FILE W4.1Cisco Annual Report. Cisco Systems, 2005. cisco.com/web/

about/ac49/ac20/ac19/ar2005/index.html (accessedDecember 2010).

Hoover, J. N. “The Cisco Premium.” InformationWeek,July 31–August 7, 2006.

4-2 Part 2: EC Applications

ONLINE FILE W4.2Application Case

BOEING’S SPARE PART MARKETPLACEBoeing (boeing.com) is the world’s largest maker of airplanesfor commercial and military customers. It also plays the roleof intermediary in supplying replacement and maintenanceparts to airlines. Unlike other online B2B intermediaries,revenue from its intermediary activities may be a minorconcern to Boeing, which makes most of its revenue fromselling airplanes. The major goal of Boeing’s intermediaryparts market, called Part Analysis and Requirement Tracking(PART), or Boeing Spares, is supporting customers’maintenance needs as a customer service.

The objective of PART is to link airlines that needmaintenance parts with suppliers who are producing the partsfor Boeing aircraft (see boeing.com/commercial/spares/part_page.html). Boeing’s online strategy is to provide a singlepoint of online access through which airlines (the buyers ofBoeing’s aircraft) and the maintenance and parts providers(Boeing’s suppliers) can access data about the parts theyneed. These data might come from the airframe builder, thecomponent supplier, the engine manufacturer, or the airlineitself. Thus, Boeing is acting as an intermediary betweenthe airlines and the parts suppliers. With data from 300 keysuppliers of Boeing’s airplane parts, Boeing’s goal is to provideits customers with one-stop shopping for online maintenanceinformation and ordering.

The Spare Parts Business Using Traditional EDIOrdering spare parts had been a multistep process for many ofBoeing’s customers. For example, an airline’s mechanicinformed the purchasing department of his company that aspecific part was needed; the purchasing departmentapproved the purchase order and sent it to Boeing by phoneor fax. The mechanic did not need to know who produced thepart because the aircraft was purchased from Boeing as onebody. However, Boeing had to find out who produced the partand then ask the producer to deliver the part to the customer(unless Boeing happened to keep an inventory of that part).

The largest airlines began to streamline the orderingprocess about 20 years ago. Because of the volume andregularity of their orders, they established EDI connectionswith Boeing over VANs. Not all airlines were quick to followsuit, however. It took until 1992 to induce 10 percent of thelargest customers, representing 60 percent of the volume, toorder through EDI. The numbers did not change much until1996 due to the cost and complexity of VAN-based EDI.

Debut of PART on the InternetBoeing viewed the Internet as an opportunity to encouragemore of its customers to order parts electronically. With theinitial investment now limited to a standard PC and basicInternet access, even its smallest customers can nowparticipate in PART. Because of its interactive capabilities,many customer service functions that were handled over thetelephone are now handled over the Internet.

In November 1996, Boeing introduced its PART page onthe Internet, giving its customers around the world theability to check parts availability and pricing, order parts,and track order status, all online. Less than a year later,about 50 percent of Boeing’s customers used PART for partsorders and customer service inquiries. In its first year ofoperation, the Boeing PART portal handled over half a mil-lion inquiries and transactions from customers around theworld. Boeing’s spare parts business processed about 20 per-cent more shipments per month in 1997 than it did in 1996with the same number of data entry people. In addition, asmany as 600 phone calls a day to customer service staff wereeliminated because customers had access to informationabout pricing, availability, and order status online. The useof PART online resulted in fewer parts being returned due toadministrative errors. Furthermore, the service may encourageairlines to buy Boeing aircraft the next time they make anaircraft purchase. (For a demo of PART, visit boeing.com.)

The system is simple and accessible to any authorizedBoeing customer. Its major capabilities are:

Parts: Customers can view up-to-date part information suchas prices, availability, and interchangeability. Partial partnumber search is available.

Orders: Customers can order as many as 25 items at a time,change an existing order, or check the status of their orders.

Quotes: Customers can request a price quote or view existingprice quotes. Receive quote information back via e-mail.

Contacts: Instantly retrieve information on how to contactpeople at Boeing Spares.

Help: Get answers to questions in PART’s “Help” and“Frequently Asked Question” sections.

Accuracy and speed: Customers who are currently tele-phoning, faxing, telexing, or e-mailing orders benefit frommore accurate orders submitted via the system. In addi-tion, orders are processed and acknowledged in seconds.

Cost saving: The Boeing PART Page may prove to be lessexpensive than other communication methods, dependingon the customer’s local cost of Internet access.

Minimal training: The Boeing PART Page is designed to beintuitive for even the first-time user. The screens and dataentry fields are uncomplicated and easy to navigate.

As a result of PART’s success, Boeing started a comple-mentary EC initiative called Boeing On-Line Data (BOLD),which enables mechanics and technicians at the airport toaccess the technical manuals they need for repairs. Thesemanuals are now available in digital form, and mechanicsand technicians can access them via wire line or wirelessdevices. In May 2000, Boeing also launched a new e-businesssite for airline customers based on PART and BOLD.

By 2009, Boeing’s PART webpage included up-to-dateparts information, such as availability, price, and whether apart is interchangeable with another part. Orders are

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Chapter Four: B2B E-Commerce 4-3

acknowledged and processed in seconds. Orders can beplaced or revised on the site in real time. Multiple orders canbe analyzed in order to simplify the procurement process.Security safeguards allow specification of the level ofpersonnel authorized to place orders. Other options availableinclude ordering as many as 25 items at a time; getting acopy of the invoice directly from the PART page;automatically requesting a quote for parts that are not pricedthat is returned by e-mail; and, obtaining customsinvoice/packing sheet for international shipping.

ONLINE FILE W4.2 (continued)

Questions1. What motivated Boeing to create PART?

2. What motivated the move from EDI to the Internet?

3. List some of the information provided by PART.

4. List and briefly discuss the benefits of PART to Boeing.

5. List and briefly discuss the benefits of PART toBoeing’s customers.

REFERENCES FOR ONLINE FILE W4.2“Boeing Launches New E-Business Web Site.” Aerotech

News and Review—Journal of Aerospace and DefenseIndustry News (May 12, 2000).

Boeing. “Boeing Part Page: Fast, Easy Access to the PartYou Want and Need.” 2009. boeing.com/commercial/

aviationservices/brochures/Boeing_Part_Page.pdf(accessed December 2010).

Boeing Commercial Aviation. boeing.com/commercial/spares/parts.html (accessed December 2010).

4-4 Part 2: EC Applications

Online File W4.3 Implementing E-Procurement

E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance tochange is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at areasonable cost. For details, see en.wikipedia.org/wiki/E-procurement.

MROs often are the initial target for e-procurement. However, improvements can be made in the purchasing of directmaterials as well. All existing manual processes of requisition creation, requests for quotation, invitation to tender,purchase order issuance, receiving goods, and making payments can be streamlined and automated. However, to mosteffectively implement such automated support, the people involved in procurement must collaborate with the suppliersalong the supply chain, as we will describe in Chapter 6.

Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part isimplementing it. The components of e-procurement systems are shown in Exhibit W4.3.1. For a model that simplifies theprocurement process by performing tasks electronically, see Podlogar (2006).

Components

• Catalog manager• Catalog exchanger• AVL (approved vendor list) editor

• Request for quote (RFQ)• Request for proposal (RFP)• Demand forecaster• Contract manager• Inventory manager• Information flow controller• Real-time integration to project management,

change management, and financials• Management of compliance with quality and

safety standards

• Purchase via contracts• Purchase from catalog• Reverse auction service for direct/indirect

materials• Reverse auction service for contracts• Auction service

• Purchase order manager• Demand aggregator• Consignment manager• Just-in-time order manager

• Document indexing• SML exchanger• Document version controller

• Periodical reports• Customized reports• Statistical analysis

ModuleCatalog Management Module• Facilitates the creation of products, subassemblies,

and components in a hierarchical manner.

Collaborative Planning Module• Supports collaborative planning between buyers

and suppliers.

Online Purchase Module• Supports both systematic and spot procurement for

direct and indirect materials and for contracts (for both goods and services).

Purchase-Order Handling Module• Enables buyers to place purchase orders via on/off

item master, reverse auction, contract purchasing, and spot market requisition.

Document Service Module• Facilitates a broad range of services for

procurement documentation such as RFQ, RFP,PO, goods receipt, and accounts payable.

Historical Performance Service Module• Provides easy access to historical statistics of all

transactions.

EXHIBIT W4.3.1 Potential E-Procurement Components

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Chapter Four: B2B E-Commerce 4-5

Online File W4.3 (continued)

Module

Information Service Module• Provides a unified information and message service

that allows users to receive/send e-mails and view status of procurement activities.

System Administration Module• Provides tools that enable the company to control

procurement activities.

Components

• Message/task center• Status of procurement operations• Customized exceptional alerts• Smart search engine• Online negotiation/discussion service

• Company master data organizer• Product group builder• Workflow designer• Authorization matrix• Look and feel designer• User/department profile organizer

Sources: Compiled from e-jing.net and oracle.com (both accessed January 2011).

The following are some of the major implementation issues that companies must consider when planning e-procurement initiatives:

◗ Fitting e-procurement into the company’s EC strategy. For example, suppose the strategy is outsourcing. In this case,e-procurement can be done in an exchange, or the customer can buy at the sellers’ websites.

◗ Reviewing and changing the procurement process itself. E-procurement may affect the number of purchasing agents,where they are located, and how purchases are approved. The degree of purchasing centralization also may be affected.

◗ Providing interfaces between e-procurement and integrated enterprise-wide information systems, such as ERP orsupply chain management. If the company does not have such systems, it may be necessary to do some restructuringbefore moving to e-procurement.

◗ Coordinating the buyer’s information system with that of the sellers. Sellers have many potential buyers. For thisreason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an integration-oriented procurement system for its buyers. The SKF information system is designed to make it easier for the procurementsystems of others (notably the distributors in other countries) that buy the company’s bearings and seals to interface withthe SKF system. The SKF system allows distributors and large buyers to gain real-time technical information on theproducts, as well as details on product availability, delivery times, and commercial terms and conditions.

◗ Consolidating the number of regular suppliers and integrating with their information systems and, if possible, withtheir business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolvedand will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the companyto get a quantity discount. Collaboration with each supplier also will be enhanced.

E-SourcingWhen implementing e-procurement, companies also should evaluate e-sourcing, theprocesses and tools that electronically enable any activity in the procurement process, suchas quotation/tender requests and responses, e-auctions, online negotiations, and spendinganalyses (see ariba.com/solutions/sourcing.cfm and Johnson and Klassen 2005). E-sourcing isthe automation of strategic sourcing.

Strategic sourcing is the process of identifying opportunities, evaluating potential sources,negotiating contracts, and managing supplier relationships to achieve corporate goals, such ascost reductions and increased quality and service as well as reductions in sourcing cycle times.E-sourcing is about removing unnecessary cost (i.e., waste and inefficiency) from the supplychain and providing competitive advantage (Minihan 2009).

Strategic sourcing requires a holistic process that automates the entire sourcing process,including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order

(continued)

e-sourcingThe process and tools thatelectronically enable anyactivity in the sourcingprocess, such as quotation/tender submittance andresponse, e-auctions,online negotiations, andspending analyses.

4-6 Part 2: EC Applications

Online File W4.3 (continued)

execution. The promise of strategic sourcing is in reducing total acquisition costs while increasing value. A fundamentalshortcoming of sourcing tools today is their inability to allow the creation of complex RFQs that allow for a variety of bidstructures that exploit complementarities and economies of scale in suppliers’ cost structures.

E-sourcing attempts to improve strategic sourcing by making it more effective and efficient. For example, MoaiTechnologies (moai.com) provides the following e-sourcing solutions:

◗ Just-in-Time Sourcing (JITS). Moai’s JITS integrates strategic consulting services with licensed software products. Thesoftware directs customers through the e-sourcing process, including negotiating with vendors and securing reliable sup-pliers, thereby lowering sourcing costs. According to Moai (2006), CompleteSource provides customized low-cost solutionsfor a flat fee. Those who are ready to take complete control of their sourcing process will benefit most from:◗ High ROI—fixed subscription cost with huge savings◗ Maximum customization—can be installed into unique workflows, applications, and processes◗ Maximum control—“Behind the firewall” solution provides flexibility and control in administering, scheduling, branding,

and process integration

◗ Strategic Consulting Services. RapidSource, Moai’s strategic consulting program, promotes testing and validation of e-sourcing to those new to the concept. With this guidance, users are guaranteed a return on investment in the program.

◗ Hosted Sourcing Software. Delays, IT complexities, and costs associated with in-house deployments are eliminated withMoai’s hosted services.

REFERENCES FOR ONLINE FILE W4.3e-jing. “E-Procurement.” e-jing.net/en/solutions/e-procure

ment.htm (no longer available online).Johnson, P. F., and R. D. Klassen. “E-Procurement.” MIT

Sloan Management Review (Winter 2005).Minihan, T. “The Truth About E-Sourcing.” Supply

Excellence, March 31, 2009. supplyexcellence.com/blog/2009/03/31/truth-about-e-sourcing (accessedDecember 2010).

Moai. “Solutions Overview.” moai.com/solutions/solutions_overview.asp (accessed December 2010).

Podlogar, M. “Simplifying the Procurement Process byUsing E-Commerce.” International Journal of Internetand Enterprise Management, 4, no. 2 (2006).

Zhao, F. Maximize Business Profits Through E-Partnership.Hershey, PA: Idea Group Inc., 2006.

Chapter Four: B2B E-Commerce 4-7

ONLINE FILE W4.4EC Application

CHEMCONNECT: THE WORLD COMMODITY CHEMICALEXCHANGEToday, buyers and sellers of chemicals and plastics can meetelectronically in a large Internet public marketplace (foundedin 1995) called ChemConnect (chemconnect.com), which is asubsidiary of Intercontinental Exchange (ICE). Theinternational community of members includes more than9,000 companies from over 150 countries worldwide. Globalchemical industry leaders, such as BP, Dow Chemical, BASF,Hyundai, Sumitomo, and many more, make transactions overChemConnect every day in real time. They save ontransaction costs, reduce cycle time, and find new marketsand trading partners around the globe. It was the first B2Be-market in the chemical industry.

ChemConnect provides a link to the Global ExchangeServices (GXS, gxs.com) trading marketplace, which managesa network of about 150,000 trading partners worldwideincluding 70 percent of Fortune 500 companies. Members areproducers, consumers, distributors, traders, and intermedi-aries involved in the chemical industry. ChemConnect offersits members a Trading Center with three trading places:

1. Marketplace for buyers. In this marketplace, buyerscan find suppliers all over the world. They can postRFQs with reverse auctions, negotiate, and more.

2. Marketplace for sellers. This marketplace exposessellers to many potential new customers. It providesautomated tools for quick liquidation. More than 1,000products are negotiated in auctions.

3. Commodity markets platform. This platform providesa powerful connection to the global spot marketplacesfor chemicals, plastics, and related materials.

ChemConnect members can use the Trading Center tostreamline sales and sourcing processes by automating requestsfor quotes, proposals, and new suppliers. The center enables amember to negotiate more efficiently with existing businesspartners as well as with new companies the member may inviteto the table—all in complete privacy. The Trading Center is ahighly effective way to get the best prices and terms availableon the worldwide market. In addition, members can access adatabase containing more than 63,000 chemicals andplastics—virtually any product members are ever likely to lookfor. In addition to trading, the exchange provides back-endfulfillment services (e.g., payments, delivery).

All three trading places provide up-to-the-minutemarket information (mostly financial and news, via

bloomberg.com) that can be translated into more than 30 different languages. Business partners provide severalsupport services. For example, Citigroup and ChemConnectjointly offer several financial services for exchange members.ChemConnect also offers systems for connecting companies’back-end systems with their business partners and withChemConnect itself.

The overall benefits of ChemConnect to its members aremore efficient business processes, lower overall transactioncosts, and time saved during negotiation and bidding. Forexample, conducting a reverse auction in a trading roomenables buyers to save up to 15 percent of a product’s cost injust 30 minutes. The same process using manual biddingmethods would take several weeks or months.

ChemConnect continues to grow, adding members andincreasing its trading volume each year. One of thecompany’s success factors is that 40 large chemicalcompanies hold about one-third of the company’s stock.Another factor is the fact that about 44 percent of theindustry uses the exchange on a regular basis.

ChemConnect has expanded its coverage to become amore diversified company, offering midstream energy, such asethanol, natural gas, and other commodities. It has alsoadded negotiation solutions, collaboration hubs, dataintegration services, price discovery features, and more. Also,its community has been expanded. Participant companiesinclude most large producers, consumers, distributors,traders, and transportation and logistics companies withineach product class in addition to banks, hedge funds, andother interested financial institutions. Finally, it offers aninfrastructure for negotiation (seechemconnect.com/negotiation.html).

In 2010, ChemConnect provides consulting services andmanagement to companies in the supply chain of thechemical energy and related industries.

Questions1. List the benefits of ChemConnect to trading

companies.

2. Describe the different trading platforms.

3. List some of the capabilities of the system.

REFERENCES FOR ONLINE FILE W4.4Angwin, J. “Top Online Chemical Exchange Is an Unlikely

Success Story.” Wall Street Journal Online, January 8,2004. chemconnect.com/pdfs/WSJ_SuccessStory.pdf(accessed July 2011).

chemconnect.com (accessed December 2010).Rappa, M. “Case Study: ChemConnect—Managing the

Digital Enterprise.” 2006. digitalenterprise.org/cases/chemconnect_text.html (accessed May 2009).