-
ONLINE FILE W5.1GENERATIONS OF B2B E-COMMERCE
Publishand Promote
1stGeneration
1995
OnlineOrderingB2C, B2BAuctions
2ndGeneration
1997
Business Value
E-MarketplacesExchanges
Personalizeand Customize
E-Government
Multichannel
E-Learning
E-CRM
MobileCommerce
Supply ChainImprovements
CollaborativeCommerce
3rdGeneration
2000
4thGeneration
2001
5thGeneration
2002 and Beyond
IntelligentSystems
Expert SalesSystems
WebServices
RFID andOthers
Internal/ExternalBusinessProcess
Management
Integration
Collaborationwith Suppliers
and Buyer
Non-ITApplication
Management
EXHIBIT W5.1.1
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-
W5.2 Part 3: Business-to-Business E-Commerce
REFERENCES FOR ONLINE FILE W5.2bigboxx.com (accessed May
2009).Reuters. “Office Depot Announces Strategic Alliance
with bigboXX.com to Serve International Accounts
in Hong Kong.” June 5, 2008.
reuters.com/article/pressRelease/idUS131056+05-Jun-2008+BW20080605
(accessed April 2009).
ONLINE FILE W5.2 Application Case
BUYING FROM VIRTUAL SELLER BIGBOXX.COMBigboXX.com (bigboxx.com),
based in Hong Kong, is aB2B retailer of office supplies. It has no
physical storesand sells products through its online catalog;
thus,bigboXX.com is an online intermediary. The company hasthree
types of customers: large corporate clients,medium-sized corporate
clients, and small office/homeoffices (SOHOs). It offers more than
8,000 items from300 suppliers. BigboXX.com’s goal is to sell its
productsin various countries in Southeast Asia.
The company’s portal is attractive and easy to use,and includes
tutorials that instruct users on how to usethe Web site. Once
registered, the user can start shop-ping using the online shopping
cart. Users can look foritems by browsing through the online
catalog or bysearching the site with a search engine. The
orderingsystem is integrated with an SAP-based back-office sys-tem.
Using its own trucks and warehouses, deliveriesscheduled online are
made within 24 hours.
Users can pay by cash or by check (upon delivery),via automatic
bank drafts, by credit card, or by purchasingcard. Soon users will
be able to pay through Internet-based direct debit, by electronic
bill presentation and pay-ment, or by Internet banking.
BigboXX.com provides numerous value-added servicesfor customers.
Among these are the ability to check itemavailability in real time;
the ability to track the status ofeach item in an order; promotions
and suggested itemsbased on customers’ user profiles; customized
prices forevery product, for every customer; control and
central-approval features; automatic activation at desired time
intervals of standing orders for repeat purchasing; and alarge
number of Excel reports and data, including compara-tive management
reports.
Bigboxx.com began operations in spring 2000. By theend of 2006,
it had over 8,500 registered customers. By2007, bigboXX.com also
offered Print Center for digital andoffset printing, Premium Center
that sources gift items forpromotions, the Records Management
Service that offerssecure document storage solutions, and the
OfficeRelocation Service that handles a full-range of
relocationarrangements for offices.
In 2008, bigboXX and Office Depot formed a strategicalliance to
provide office products and services to corpo-rate customers in
Hong Kong, a key market for many globalcompanies. The relationship
between Office Depot andbigboXX.com will provide a complete
procurement solutionfor customers in Hong Kong.
Questions1. Enter bigboxx.com and staples.com, and compare
their B2B offerings and purchase processes. (Take the tutorial
at bigboxx.com.) What supportservices are provided?
2. Someday customers may become accustomed to buying office
supplies online. Then, they may try to buy directly from the
manufacturers. Will bigboXX.com or Staples.com then
bedisintermediated? Why or why not?
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-
Chapter Five: B2B E-Commerce W5.3
ONLINE FILE W5.3 Application Case
WHIRLPOOL B2B TRADING PORTALWhirlpool (whirlpool.com) is a $19
billion global corpora-tion based in Benton Harbor, Michigan. It is
in the com-pany’s best interest to operate efficiently and to offer
as much customer service for the members (businesspartners) of its
selling chain as possible. It is a complexjob, because the partners
are located in 170 countries.Middle-tier partners, who comprise 25
percent of the totalpartner base and 10 percent of Whirlpool’s
annual revenue,were submitting their orders by phone or fax because
theywere not large enough to have system-to-system
computerconnections direct (such as EDI) to Whirlpool.
To improve customer service for these dealers,Whirlpool
developed a B2B trading partner portal (WhirlpoolWeb World), using
IBM e-business solutions. The technolo-gies enable fast, easy Web
self-service ordering processes.Using these self-service processes,
Whirlpool was able to cutthe cost per order to under $5—a savings
of 80 percent.
The company tested ordering via the Web by develop-ing a portal
for low-level products. It was so successfulthat Whirlpool created
a second-generation portal, whichallows middle-tier trade partners
to place orders and tracktheir status through a password-protected
site.
Simultaneously, the company implemented SAP R/3for order entry,
which is utilized by the middle-tier
partners on the second-generation portal. The companyalso is
using IBM’s Application Framework for e-business,taking advantage
of its rapid development cycles and asso-ciated cost
reductions.
Whirlpool’s global platform provides its operationswith
resources and capabilities few other manufacturerscan match.
Whirlpool’s global procurement, product devel-opment, and
information technology organizations helpthe company’s operations
reduce costs, improve efficien-cies, and introduce a continuous
stream of relevantinnovation to consumers.
Using the same IBM platform, Whirlpool launched aB2C site for
U.S. customers for ordering small appliancesand accessories. The
site was so successful that the com-pany realized a 100 percent ROI
in just five months.
Questions1. How do Whirlpool’s customers benefit from the
portal?
2. What are the benefits of the trading portal forWhirlpool?
3. Relate the B2B sell side to a B2C Webstore.
REFERENCE FOR ONLINE FILE W5.3IBM.“Whirlpool’s B2B Trading
Portal Cuts per Order Cost
Significantly.” White Plains, NY: IBM CorporationSoftware Group,
Pub. G325-6693-00, 2000.
An extranet uses the TCP/IP protocol to link intranets in
different locations (as shown inExhibit W5.4.1). Extranet
transmissions are usually conducted over the Internet, whichoffers
little privacy or transmission security. Therefore, it is necessary
to add securityfeatures. This is done by creating tunnels of
secured data flows, using cryptography andauthorization algorithms,
to provide secure transport of private communications. AnInternet
with tunneling technology is known as a virtual private network
(VPN) (seeen.wikipedia.org/wiki/Virtual_private_network).
Online File W5.4 Extranets
extranetA network that uses avirtual private network tolink
intranets in differentlocations over the Internet;an “extended
intranet.”
(continued)
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W5.4 Part 3: Business-to-Business E-Commerce
Extranets provide secured connectivity between a corporation’s
intranets and theintranets of its business partners, materials
suppliers, financial services, government, andcustomers. Access to
an extranet is usually limited by agreements of the collaborating
par-ties, is strictly controlled, and is available only to
authorized personnel using a secure pass-word and log-in. The
protected environment of an extranet allows partners to
collaborateand share information, and to perform these activities
securely.
Because an extranet allows connectivity between businesses
through the Internet, itis an open and flexible platform suitable
for B2B. To increase security, many companiesreplicate the portions
of their databases that they are willing to share with their
businesspartners and separate them physically from their regular
intranets. However, even separateddata need to be secured. (See
Chapter 9 for more on EC network security.)
The benefits of extranets fall into five categories:
1. Enhanced communications. The extranet enables improved
internal communications; improved business partnershipchannels;
effective marketing, sales, and customer support; and facilitated
collaborative activities support.
2. Productivity enhancements. The extranet enables just-in-time
information delivery, reduction of information overload,productive
collaboration between work groups, and training on demand.
3. Business enhancements. The extranet enables faster
time-to-market, potential for simultaneous engineering
andcollaboration, lower design and production costs, improved
client relationships, and creation of new
businessopportunities.
Online File W5.4 (continued)
OtherBusinessPartners,
Government
My SuppliersA, B, C . . .
Intranets
Intranets
Intranet
IntranetInternet
with VPN
Internetwith VPN
Internetwith VPN
My Customers
B2B
My Company
My Field Employees
EXHIBIT W5.4.1 The Structure of an Extranet
virtual private network(VPN)A network that createstunnels of
secured dataflows, using cryptographyand authorizationalgorithms,
to providesecure transport ofprivate communicationsover the public
Internet.
(continued)
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.4
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Chapter Five: B2B E-Commerce W5.5
4. Cost reduction. The extranet results in fewer errors,
improved comparison shopping, reduced travel and meeting timeand
cost, reduced administrative and operational costs, and elimination
of paper publishing costs.
5. Information delivery. The extranet enables low-cost
publishing, leveraging of legacy systems, standard delivery
sys-tems, ease of maintenance and implementation, and elimination
of paper-based publishing and mailing costs.
Additional advantages of an extranet include ready access to
information, ease of use, freedom of choice, moderatesetup cost,
simplified workflow, lower training cost, flexibility, more
customer loyalty, and better group dynamics. There arealso
disadvantages, such as difficulty in justifying the investment
(measuring benefits and costs), high user expectations,and drain on
resources. See Chow (2004) for success factors of using extranets
in e-supply chains.
Online File W5.4 (continued)
REFERENCES FOR ONLINE FILE W5.4All Business. “The Benefits of
Extranets.” 2009.
allbusiness.com/technology/computer-networking/1283-1.html
(accessed April 2009).
Chow, W. S. “An Exploratory Study of the Success Factorsfor
Extranet Adoption in E-Supply Chain.” Journal of Global Information
Management ( January–March2004).
The vast majority of B2B transactions are supported by EDI, XML,
and extranets. Here we describe EDI and its transition to the
Internet platform. Extranets were covered in Online File W5.4.
Traditional EDIEDI is a communication standard that enables the
electronic transfer of routine documents, such as purchasing
orders,between business partners. It formats these documents
according to an agreed-upon structure. An EDI implementation isa
process in which two or more organizations determine how to work
together more effectively through the use of EDI.For other
organizations, it is an internal decision spurred by the desire for
competitive advantage. EDI is basically acomputer-to-computer
messaging system with a minimum of human intervention. For a
comparison of EDI versus no EDI,see Exhibit W5.5.1.
EDI often serves as a catalyst and a stimulus to improve the
business processes that flow between organizations. Itreduces
costs, delays, and errors inherent in a manual document-delivery
system:
◗ Business transaction messages. EDI primarily is used to
electronically transfer repetitive business transactions.
Theseinclude purchase orders, invoices, credit approvals, shipping
notices, confirmations, and so on.
◗ Data-formatting standards. Because EDI messages are
repetitive, it makes sense to use formatting (coding)
standards.Standards can shorten the length of the messages and
eliminate data entry errors, because data entry occurs only
once.EDI deals with standard transactions, whereas e-mail is more
open. EDI uses a special standard language and is secure,whereas
e-mail is not. When a user enters data into the EDI system, the
data are automatically converted to EDI language.
Online File W5.5 From Traditional to Internet-Based EDI
(continued)
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-
Online File W5.5 (continued)
W5.6 Part 3: Business-to-Business E-Commerce
Purchasing
Accounting/Finance
Mail Room
Order Fulfillment
Accounting/Finance
Mail Room
Sales
PaymentDelivery
Order ConfirmationBill Delivery
PODelivery
Receiving Order Fulfillment
POStandardized
PO Form
Start
Order Placer
ShippingReceiving
Buyer
Shipping
Seller
Without EDI
ProductDelivery
Buyer
Shipping
Seller
With EDI
ProductDelivery
PO
Start
DepartmentalBuyer
EDI Converter
Computer ConverterGeneratesStandardizedPO Form
InstantData to• Sales• Inventory• Manufacturing• Engineering
Invoice FlashReport
EXHIBIT W5.5.1 Purchase Order Fulfillment with and without
EDI
(continued)
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.6
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Chapter Five: B2B E-Commerce W5.7
If there are missing or incorrect data, the EDI converter offers
assistance. EDI fosters collaborative relationships andstrategic
partnerships. In the United States and Canada, data are formatted
according to the ANSI X.12 standard or theUCS code. An
international standard developed by the United Nations is called
EDIFACT (see bambooweb.com).
◗ EDI translators. An EDI translator automatically translates
data. The software organizes information into a standard
format.
EDI has been around for about 30 years in the non-Internet
environment. To distinguish it from Internet-based EDI,we call EDI
on the non-Internet platform traditional EDI.
How Does EDI Work?The following example illustrates how EDI
works in a hospital. Information flows from the hospital’s
information systemsinto an EDI station that includes a PC and an
EDI translator. From there, the information moves, using a modem if
neces-sary, to a value-added network (VAN). The VAN transfers the
formatted information to a vendor(s), where an EDI
translatorconverts it to a desired format.
How EDI Cuts Costs of Ordering SuppliesAn average hospital
generates about 15,000 purchase orders each year, at a processing
cost of about $70 per order. TheHealth Industry Business
Communication Council estimates that EDI can reduce this cost to $4
per order—generatingyearly savings of $840,000 per hospital. The
required investment ranges between $8,000 and $15,000, which
includespurchase of a PC with an EDI translator, a modem, and a
link to the mainframe-based information system. The hospitalcan
have two or three ordering points. These are connected to a VAN,
which connects the hospital to its suppliers (seeExhibit W5.5.2).
The system also can connect to other hospitals or to centralized
joint purchasing agencies.
Online File W5.5 (continued)
HospitalInformation
System
Pharmacy:PC/EDI
Translator
Dietary:PC/EDI
Translator
PC/EDIModem VAN
MaterialManagement:
PC/EDITranslator
Hospitals
PC to Mainframe Links
Telephone Lines
PC/EDI Translator
MaterialsSupplier’sSystem
Mainframe
PC/EDI Translator
DietarySupplier’sSystem
Other Hospitals’PC/EDITranslators
PC/EDI Translator
PharmaceuticalSupplier’sSystem
Mainframe
Mainframe
EXHIBIT W5.5.2 How EDI Cuts the Cost of Ordering Supplies
(continued)
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W5.8 Part 3: Business-to-Business E-Commerce
Applications of Traditional EDITraditional EDI has changed the
business landscape, triggering new definitions of entire
industries. It is used extensively bylarge corporations, sometimes
in a global network, such as the one operated by General Electric
Information System (whichhas over 100,000 corporate users).
Well-known retailers such as Home Depot and Walmart would operate
very differentlywithout EDI, because it is an integral and
essential element of their business strategies. Thousands of global
manufacturers,including Procter & Gamble, Levi Strauss, Toyota,
and Unilever, have used EDI to redefine relationships with their
customersthrough such practices as quick-response retailing and
just-in-time (JIT) manufacturing. These highly visible,
high-impactapplications of EDI by large companies have been
extremely successful. The benefits of EDI are listed next.
Benefits of EDI
◗ EDI enables companies to send and receive large amounts of
routine transaction information quickly around the globe.◗
Computer-to-computer data transfer reduces the number of errors.◗
Information can flow among several trading partners consistently
and freely.◗ Companies can access partners’ databases to retrieve
and store standard transactions.◗ EDI fosters true (and strategic)
partnership relationships because it involves a commitment to a
long-term investment
and the refinement of the system over time.◗ EDI creates a
complete paperless transaction processing system (TPS) environment,
saving money and increasing efficiency.◗ Payment collection can be
shortened by several weeks.◗ Data may be entered offline, in batch
mode, without tying up ports to the mainframe.◗ When an EDI
document is received, the data may be used immediately.◗ Sales
information is delivered to manufacturers, shippers, and warehouses
almost in real time.◗ EDI can save companies a considerable amount
of money.
Limitations of Traditional EDIHowever, despite the tremendous
impact of traditional EDI among industry leaders, the set of
adopters represented only asmall fraction of potential EDI users.
In the United States, where several million businesses participate
in commerce everyday, fewer than 100,000 companies have adopted
traditional EDI. Furthermore, most of these companies have had only
asmall number of their business partners on EDI, mainly due to its
high cost. Therefore, in reality, few businesses have ben-efited
from EDI. The major factors that held back more universal
implementation of traditional EDI include the following:
◗ Significant initial investment is needed, and ongoing
operating costs are high.◗ Business processes must be restructured
to fit EDI requirements.◗ A long start-up period is needed.◗ EDI
requires use of expensive private VANs.◗ EDI has a high operating
cost.◗ Multiple EDI standards exist, so one company may have to use
several standards in order to communicate with different
business partners.◗ The system is difficult to use.◗ A converter
is required to translate business transactions to EDI code.◗ The
system is inflexible; it is difficult to make quick changes, such
as adding business partners.
These factors suggest that traditional EDI—relying on formal
transaction sets, translation software, and VANs—is notsuitable as
a long-term solution for most corporations. Therefore, a better
infrastructure was needed; Internet-based EDI issuch an
infrastructure. For details, see Harris and Chen (2006).
Online File W5.5 (continued)
(continued)
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.8
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Chapter Five: B2B E-Commerce W5.9
Internet-Based EDIInternet-based (or Web-based) EDI is becoming
very popular. Let’s see why this is the case and review the various
types ofWeb-based EDI.
Why Internet-Based EDI?When considered as a channel for EDI, the
Internet appears to be the most feasible alternative for putting
online B2Btrading within reach of virtually any organization, large
or small. Firms should use Internet-based EDI for several
reasons:
◗ The Internet is a publicly accessible network with few
geographical constraints. Its largest attribute, large-scale
connec-tivity (without the need for any special company networking
architecture), is a seedbed for growth of a vast range of busi-ness
applications.
◗ The Internet’s global network connections offer the potential
to reach the widest possible number of trading partners ofany
viable alternative currently available.
◗ Using the Internet instead of a VAN can cut communication
costs by over 50 percent.◗ Using the Internet to exchange EDI
transactions is consistent with the growing interest in delivering
an ever-increasing
variety of products and services electronically, particularly
via the Web.◗ Internet-based EDI can complement or replace many
current EDI applications.◗ Internet tools such as browsers and
search engines are very user-friendly, and most employees today
know how to use them.◗ Internet-based EDI has several
functionalities not provided by traditional EDI, such as
collaboration, workflow, and search
engine capabilities.
Types of Internet-Based EDIThe Internet can support EDI in a
variety of ways:
◗ Internet e-mail can be used to transport EDI messages in place
of a VAN. To this end, standards for encapsulating the mes-sages
within Secure Internet Mail Extension (S/MIME) have been
established.
◗ A company can create an extranet that enables its trading
partners to enter information into a Web form, the fields ofwhich
correspond to the fields in an EDI message or document.
◗ Companies can use a Web-based EDI hosting service in much the
same way that companies rely on third parties to hosttheir EC
sites. Netscape Enterprise is an example of the type of Web-based
EDI software that enables a company to pro-vide its own EDI
services over the Internet. Harbinger Express is an example of a
company that provides third-partyhosting services.
◗ Internet-based EDI is frequently XML based to ease integration
among business partners.
The Prospects of Internet-Based EDICompanies that used
traditional EDI in the past have had a positive response to
Internet-based EDI. With traditionalEDI, companies have to pay for
network transport, translation, and routing of EDI messages into
their legacyprocessing systems. The Internet simply serves as a
cheaper alternative transport mechanism. For a discussion, see
Meadors (2005). The combination of the Web, XML, and Java makes EDI
worthwhile even for small, infrequenttransactions. Whereas EDI is
not interactive, the Web and Java were designed specifically for
interactivity as well asease of use.
The following examples demonstrate the benefits of
Internet-based EDI:
◗ CompuCom Systems was averaging 5,000 transactions per month
with traditional EDI. In just a short time after thetransition to
Web-based EDI, the company was able to average 35,000 transactions.
The system helped the companyto grow rapidly.
Online File W5.5 (continued)
(continued)
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W5.10 Part 3: Business-to-Business E-Commerce
◗ Atkins Carlyle Corp., which buys from 6,000 suppliers and has
12,000 customers in Australia, is a wholesaler of
industrial,electrical, and automotive parts. The large suppliers
were using three different EDI platforms. By moving to an
Internet-based EDI, the company is able to collaborate with many
more business partners, reducing transaction costs by about $2per
message.
◗ Procter & Gamble replaced a traditional EDI system that
had 4,000 business partners with an Internet-based system thathas
tens of thousands of suppliers.
Note that many companies no longer refer to their collaborative
systems as EDI. However, the properties of EDI areembedded into new
e-commerce initiatives such as collaborative commerce and
electronic exchanges.
Online File W5.5 (continued)
REFERENCES FOR ONLINE FILE W5.5Harris, A. L., and C. Chen.
“Traditional and Internet
EDI Adoption Barriers,” in Khosrow-Pour (2006).Khosrow-Pour, M.
(Ed.). Encyclopedia of E-Commerce,
E-Government, and Mobile Commerce, Hershey, PA:Idea Group
Reference, 2006.
Meadors, K. “Secure Electronic Data Interchange overthe
Internet.” IEEE Xplore, May/June 2005.
ONLINE FILE W5.6 Application Case
CISCO CONNECTION ONLINECustomer ServiceCisco began providing
electronic support in 1991 usingvalue-added networks (VANs). The
first applications offeredwere software downloads, defects
diagnoses, and technicaladvice. In spring 1994, Cisco moved its
system to the Weband named it Cisco Connection Online (CCO). By
2004,Cisco’s customers and reseller partners were logging
ontoCisco’s Web site over 2 million times a month to
receivetechnical assistance, place and check orders, or
downloadsoftware. The online service has been so well received
thatnearly 85 percent of all customer service inquiries and 95
percent of software updates are delivered online. Theservice is
delivered globally in 16 languages. CCO isconsidered a model for
B2B success, and several bookshave been written about it.
Online Ordering by CustomersVirtually all of Cisco’s 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
in
July 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 cansit down at a PC,
configure a product, and find out imme-diately if there are any
errors in the configuration (somefeedback is given by intelligent
agents).
By providing online pricing and configuration tools tocustomers,
99 percent of orders are now placed throughCCO, saving time for
both Cisco and its customers. In thefirst five months of online
ordering operations in 1996,Cisco booked over $100 million in
online sales. This figuregrew to $4 billion in 1998, to over $8
billion in 2002, andto about $12 billion in 2005 (Cisco Annual
Report 2005).(Note: Data for Cisco’s online and offline sales are
not sep-arated after 2005.)
Tracking Order StatusEach month Cisco used to receive over
150,000 order-statusinquiries such as, “When will my order be
ready?” “Howshould the order be classified for customs?” “Is the
producteligible for NAFTA agreement?” “What export control
issues
(continued)
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Chapter Five: B2B E-Commerce W5.11
ONLINE FILE W5.6 (continued)
apply?” Cisco provides self-tracking and FAQ tools so
thatcustomers can find the answers to many of their questionsby
themselves. In addition, the company’s primary domes-tic and
international freight forwarders update Cisco’s data-base
electronically about the status of each shipment. CCOcan record the
shipping date, the method of shipment, andthe current location of
each product. All new information ismade 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 in 1998, Cisco has saved $363 millionper year, or
approximately 17.5 percent of its total operat-ing costs. This is
due primarily to increased productivity ofthe employees who take
and process orders.
◗ Improved quality. The system facilitates the Six Sigmamission
of Cisco.
◗ Enhanced technical support and customer service. Withmore than
85 percent of its technical support and customerservice calls
handled online, Cisco’s technical support pro-ductivity 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’ssite, saving the company
$180 million in distribution,packaging, and duplicating costs each
year. Having prod-uct and pricing information on the Web and
Web-basedCD-ROMs saves Cisco an additional $50 million annuallyin
printing and distributing catalogs and marketingmaterials to
customers.
◗ Faster service. Lead times were reduced from 4 to 10 daysto 2
to 3 days.
The CCO system also benefits customers. Cisco cus-tomers can
configure orders more quickly, immediatelydetermine costs, and
collaborate much more rapidly andeffectively with Cisco’s staff.
Also, customer service andtechnical support are faster.
In 2006, Cisco moved to selling its hardware (routersand
switches and VoIP) and the software that powers themseparately.
This unbundling gives customers more flexibil-ity (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 W5.6Cisco Annual Report. Cisco
Systems, 2005. cisco.com/web/
about/ac49/ac20/ac19/ar2005/index.html (accessedMay 2009).
Hoover, J. N. “The Cisco Premium.” InformationWeek,July
31–August 7, 2006.
ONLINE FILE W5.7 Application Case
BOEING’S PART MARKETPLACEBoeing (boeing.com) is the world’s
largest maker of air-planes for commercial and military customers.
It also playsthe role of intermediary in supplying replacement
andmaintenance parts to airlines. Unlike other online
B2Bintermediaries, revenue from its intermediary activitiesmay be a
minor concern to Boeing, which makes most of
its revenue from selling airplanes. The major goal ofBoeing’s
intermediary parts market, called Part Analysisand Requirement
Tracking (PART), 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
(continued)
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W5.12 Part 3: Business-to-Business E-Commerce
ONLINE FILE W5.7 (continued)
parts for Boeing aircraft (see
boeing.com/commercial/spares/part_page.html). Boeing’s online
strategy is to pro-vide a single point of online access through
which airlines(the buyers of Boeing’s aircraft) and the maintenance
andparts providers (Boeing’s suppliers) can access data aboutthe
parts they need. These data might come from the air-frame builder,
the component supplier, the engine manu-facturer, or the airline
itself. Thus, Boeing is acting as anintermediary between the
airlines and the parts suppliers.With data from 300 key suppliers
of Boeing’s airplaneparts, Boeing’s goal is to provide its
customers with one-stop shopping for online maintenance information
andordering.
The Spare Parts Business Using Traditional EDIOrdering spare
parts had been a multistep process formany of Boeing’s customers.
For example, an airline’smechanic informed the purchasing
department of his com-pany that a specific part was needed; the
purchasingdepartment approved the purchase order and sent it
toBoeing by phone or fax. The mechanic did not need toknow who
produced the part because the aircraft was pur-chased from Boeing
as one body. However, Boeing had tofind out who produced the part
and then ask the producerto deliver the part to the customer
(unless Boeing hap-pened 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 fol-low suit, however. It took until
1992 to induce 10 percentof the largest customers, representing 60
percent of thevolume, to order through EDI. The numbers did not
changemuch until 1996 due to the cost and complexity of VAN-based
EDI.
Debut of PART on the InternetBoeing viewed the Internet as an
opportunity to encour-age more of its customers to order parts
electronically.With the initial investment now limited to a
standard PCand basic Internet access, even its smallest
customerscan now participate in PART. Because of its
interactivecapabilities, many customer service functions that
werehandled over the telephone are now handled over
theInternet.
In November 1996, Boeing introduced its PART pageon the
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 forparts orders and
customer service inquiries. In its first yearof operation, the
Boeing PART portal handled over half amillion inquiries and
transactions from customers aroundthe world. Boeing’s spare parts
business processed about20 percent more shipments per month in 1997
than it didin 1996 with the same number of data entry people.
Inaddition, as many as 600 phone calls a day to customerservice
staff were eliminated because customers hadaccess to information
about pricing, availability, and orderstatus online. The use of
PART online resulted in fewerparts being returned due to
administrative errors.Furthermore, the service may encourage
airlines to buyBoeing aircraft the next time they make an aircraft
pur-chase. (For a demo of PART, visit boeing.com.)
As a result of PART’s success, Boeing started a com-plementary
EC initiative called Boeing On-Line Data(BOLD), which enables
mechanics and technicians at theairport to access the technical
manuals they need forrepairs. These manuals are now available in
digital form,and mechanics and technicians can access them via
wireline or wireless devices. In May 2000, Boeing alsolaunched a
new e-business site for airline customers basedon PART and
BOLD.
By 2009, Boeing’s PART Web page included up-to-dateparts
information, such as availability, price, and whether apart is
interchangeable with another part. Orders areacknowledged and
processed in seconds. Orders can beplaced or revised on the site in
real time. Multiple orderscan be analyzed in order to simplify the
procurementprocess. Security safeguards allow specification of the
levelof personnel authorized to place orders. Other
optionsavailable include ordering as many as 25 items at a
time;getting a copy of the invoice directly from the PART
page;automatically requesting a quote for parts that are notpriced
that is returned by e-mail; and, obtaining customsinvoice/packing
sheet for international shipping.
Questions1. What motivated Boeing to create PART?
2. What motivated the move from EDI to the Internet?
3. List and briefly discuss the benefits of PART to Boeing.
4. List and briefly discuss the benefits of PART to Boeing’s
customers.
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Chapter Five: B2B E-Commerce W5.13
REFERENCES FOR ONLINE FILE W5.7“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 thePart You Want
and Need.” 2009. boeing.com/
commercial/aviationservices/brochures/Boeing_Part_Page.pdf
(accessed May 2009).
ONLINE FILE W5.8 Application Case
HOW THE STATE OF PENNSYLVANIA SELLS SURPLUS EQUIPMENTFor many
years, the Pennsylvania Department ofTransportation (DOT) used a
traditional offline auctionprocess. As of October 2003, the state
is holding onlineauctions to sell its surplus heavy equipment. The
old, livein-person auction system generated about $5 million ayear.
Using the Internet, the DOT is generating at least a20 percent
increase in revenue.
The Commonwealth of Pennsylvania conducted its ini-tial online
sale of surplus DOT items in October 2003. Thesale consisted of 77
items (including 37 dump trucks).Onsite inspection was available
twice during the two-weekbidding period. The online sale allowed
the Commonwealthof Pennsylvania to obtain an average price increase
of 20 percent, while reducing labor costs related to holding
atraditional on-site sale. On high-value specialty items(i.e., a
bridge inspection crane and a satellite van), resultsexceeded the
estimated sale prices by over 200 percent.
The auction was conducted by AssetAuctions(assetauctions.com).
The results of the auction were as follows:
◗ Total sales: $635,416.03.◗ Half of the bidding activity
occurred in the final two days.
◗ Every lot received multiple bids.◗ Overtime bidding occurred
in 39 lots.◗ 174 bidders from 19 states and Mexico made about
1,500 bids in five days.◗ 47 different buyers participated.
The Commonwealth of Pennsylvania now sells surplusequipment and
properties using both AssetAuctions andeBay.
Questions1. Why is heavy equipment amenable to such
auctions?
2. Why did the state generate 20 percent more in rev-enues with
the online auction?
3. Why do you need an intermediary to conduct suchan
auction?
4. Comment on the number of bidders and bids with an online
auction as compared to an offlineauction.
REFERENCES FOR ONLINE FILE W5.8asset-auctions.com (accessed July
2009).Commonwealth of Pennsylvania. “Pennsylvania’s Surplus
Property Programs.” 2006. portal.state.pa.us/portal/
server.pt?open=512&objID=1393&&SortOrder=16&level=2&parentid=1231&css=L2&mode=2(accessed
July 2009).
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W5.14 Part 3: Business-to-Business E-Commerce
Online File W5.9 The E-Procurement Process: A Buyer’s View
Search for Vendors and Products
E-catalogs, brochures, conventions, exhibits, telephone calls,
visits.
Qualify Vendors
Which vendors can we dobusiness with?Research firms for
financial stability and credit history.
Select a Market Mechanism
Private, public, auctions (tendering) exchange,
bartering(Tendering system hasa special process.)
Compare and Negotiate
Compare price, financing, delivery, quality, etc.Select a
vendor.
Initiate a Purchase Order (PO)
Fill in electronic form or trigger ready order.
Arrange a Pickup or Receive Shipment
Check shipping documents, billing, quality.
Make Payments
Approve payment.Arrange money transfer.
Make a Purchase Arrangement
(Individual or committee)Have a contract.Arrange payment.
Pre-Purchase Activities After-Purchase Activities
EXHIBIT W5.9.1
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Chapter Five: B2B E-Commerce W5.15
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 W5.10.1.
For a model that simplifies theprocurement process by performing
tasks electronically, see Podlogar (2006).
Online File W5.10 Implementing E-Procurement
EXHIBIT W5.10.1 Potential E-Procurement ComponentsModule
Components
Catalog 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 spotmarket
requisition.
• Catalog manager• Catalog exchanger• Approved vendor list (AVL)
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• JIT order manager
(continued)
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W5.16 Part 3: Business-to-Business E-Commerce
The following are some of the major implementation issues that
companies must consider when planning e-procurementinitiatives:
◗ 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’ Web sites.
◗ Reviewing and changing the procurement process itself.
E-procurement may affect the number of purchasingagents, where they
are located, and how purchases are approved. The degree of
purchasing centralization also may beaffected.
◗ 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. Forthis reason, some
major suppliers, such as SKF (a Swedish automotive parts maker; see
skf.com), developed an inte-gration-oriented procurement system for
its buyers. The SKF information system is designed to make it
easier for theprocurement systems of others (notably the
distributors in other countries) that buy the company’s bearings
and seals
Online File W5.10 (continued)
Sources: Compiled from e-jing.net and oracle.com (both accessed
May 2009).
(continued)
EXHIBIT W5.10.1 (continued)
• Document indexing• SML exchanger• Document version
controller
• Periodical reports• Customized reports• Statistical
analysis
• 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
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.
Information Service Module• Provides a unified information and
message service
that allows users to receive/send e-mails and viewstatus of
procurement activities.
System Administration Module• Provides tools that enable the
company to control
procurement activities.
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.16
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Chapter Five: B2B E-Commerce W5.17
to interface with the SKF system. The SKF system allows
distributors and large buyers to gain real-time
technicalinformation on the products, as well as details on product
availability, delivery times, and commercial terms
andconditions.
◗ 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, the processesand tools that electronically
enable any activity in the procurement process, such as
quota-tion/tender requests and responses, e-auctions, online
negotiations, and spending analyses(see
ariba.com/solutions/sourcing.cfm and Johnson and Klassen 2005).
E-sourcing is theautomation 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 exe-cution. 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.The software
directs customers through the e-sourcing process, including
negotiating with vendors and securingreliable suppliers, thereby
lowering sourcing costs. According to Moai (2006), CompleteSource
provides customizedlow-cost solutions for a flat fee. Those who are
ready to take complete control of their sourcing process will
benefitmost 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 theprogram.
◗ Hosted Sourcing Software. Delays, IT complexities, and costs
associated with in-house deployments are eliminated withMoai’s
hosted services.
Online File W5.10 (continued)
e-sourcingThe process and toolsthat electronically enableany
activity in thesourcing process, such asquotation/tendersubmittance
andresponse, e-auctions,online negotiations, andspending
analyses.
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W5.18 Part 3: Business-to-Business E-Commerce
REFERENCES FOR ONLINE FILE W5.10e-jing. “E-Procurement.”
e-jing.net/en/solutions/
e-procurement.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
(accessedApril 2009).
Moai. “Solutions Overview.”
moai.com/solutions/solutions_overview.asp (accessed April
2009).
Podlogar, M. “Simplifying the Procurement Process byUsing
E-Commerce.” International Journal ofInternet and Enterprise
Management, 4, no. 2(2006).
Zhao, F. Maximize Business Profits Through
E-Partnership.Hershey, PA: Idea Group Inc., 2006.
ONLINE FILE W5.11 Application Case
THE PROCUREMENT REVOLUTION AT GENERAL ELECTRICGeneral Electric’s
material costs increased 16 percentbetween 1982 and 1992 (Trading
Process Network 1999).During those same years, GE’s product prices
remained flator for some products even declined. In response to
thecost increases, GE began an all-out effort to improve
itspurchasing system. The company analyzed its procurementprocess
and discovered that its purchasing was inefficient,involved too
many transactions, and did not leverage GE’slarge volumes to get
the best prices. In addition, morethan one-quarter of its 1.25
million invoices per year hadto be reworked because the purchase
orders, receipts, andinvoices did not match.
TPN at GE’s Lighting DivisionOf a number of steps GE took to
improve its procure-ment, one of the most innovative was the
introductionof an electronic tendering system that started in
GE’sLighting Division. Factories at GE Lighting used to
sendhundreds of RFQs to the corporate sourcing departmenteach day,
many for low-value machine parts. For eachrequisitions, the
accompanying blueprints had to berequested from storage, retrieved
from the vault, trans-ported to the processing site, photocopied,
folded,attached to paper requisition forms with quote
sheets,stuffed into envelopes, and mailed out to bidders.
Thisprocess took at least seven days and was so complex
andtime-consuming that the sourcing department normallysent out bid
packages for each part to only two or threesuppliers.
In 1996, GE Lighting piloted the company’s first e-procurement
system, called the Trading ProcessNetwork (TPN) Post. With this
online system, the
sourcing department received the requisitions electroni-cally
from its internal customers and sent off a bid pack-age to
suppliers around the world via the Internet. Thesystem
automatically pulled the correct drawings andattached them to the
electronic requisition forms.Within two hours from the time the
corporate sourcingdepartment started the process, suppliers were
notifiedof incoming RFQs by e-mail, fax, or EDI. They were
givenseven days to prepare a bid and return it electronicallyto GE
Lighting. Then the bid was transferred internally,over the
corporate intranet, to the appropriateevaluators, and a contract
could be awarded that same day.
Benefits of TPN. As a result of implementing TPN, GErealized a
number of benefits:
◗ Administrative labor involved in the procurement
processdeclined by 30 percent. At the same time, material
costsdeclined 5 to 50 percent due to the procurement depart-ment’s
ability to reach a wider base of competing suppli-ers online.
◗ GE was able to cut the number of staff involved in the
pro-curement process by 50 percent and redeploy the unneces-sary
workers into other jobs. As a result, the sourcingdepartment had at
least 6 to 8 free days a month to con-centrate on strategic
activities rather than on paperwork,photocopying, and envelope
stuffing.
◗ It used to take 18 to 23 days to identify suppliers, preparea
request for bid, negotiate a price, and award the con-tract to a
supplier. After implementation of the TPN, ittook 9 to 11 days.
(continued)
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Chapter Five: B2B E-Commerce W5.19
ONLINE FILE W5.11 (continued)
◗ With the transaction handled electronically from begin-ning to
end, invoices could be automatically reconciledwith purchase
orders, reflecting any modifications thathappened along the
way.
◗ GE procurement departments around the world were ableto share
information about their best suppliers. InFebruary 1997 alone, GE
Lighting found seven new sup-pliers through the Internet, including
one that charged20 percent less than the second-lowest bid.
By 2001, 12 of GE’s divisions were purchasing theirnonproduction
and MRO materials over the Internet for anannual total of $6
billion (35 percent of their total pro-curement). General Electric
estimates that streamliningthese purchases alone has saved the
company $500 to$700 million annually.
The Inception of GXSDue to the success of TPN, GE expanded the
system, mak-ing it a public posting place for other buyers. In
2001,TPN was acquired by GXS Express Marketplaces, which
wasoperated by GE Global Exchange Services (gxs.com). GXSnow
operates as a public marketplace on which many othercompanies place
RFQs. GXS has over 30,000 companiesincluding 70 percent of Fortune
500 companies, tradingpartners in 50 countries, and in 2008 it
processed over 4 billion transactions. It is one of the most
profitable dot-com companies. In June 2002, it was sold to
FranciscoPartners under whose control it continues to operate
underthe name GXS (gxs.com). GXS also assumed the EDI ser-vices of
GE Information Services.
Benefits of GXS. Suppliers in the GXS system can gaininstant
access to global buyers (including GE) with billionsof dollars in
purchasing power. In addition, they may dra-matically improve the
productivity of their own biddingand sales activities. Other
benefits are increased sales vol-ume, expanded market reach and
ability to find new buy-ers, lower administration costs for sales
and marketingactivities, shorter requisition cycle time, improved
salesstaff productivity, and a streamlined bidding process.
General Electric reports that the benefits of GXSextend beyond
its own walls. As an example, computerreseller Hartford Computer
Group reports that since joiningGXS, it has increased its exposure
to different GE businessunits so that its business with GE has
grown by over 250 percent. In addition, GXS has introduced
HartfordComputer Group to other potential customers.
More generally, the benefits of GXS to purchasingdepartments
include the following: streamlining sourcingprocesses with current
business partners; finding andbuilding partnerships with new
suppliers worldwide;rapidly distributing information,
specifications, and elec-tronic drawings to multiple suppliers
simultaneously; andcutting sourcing cycle times and reducing costs
forsourced goods.
Deployment Strategies and ChallengesThis case demonstrates two
deployment strategies for EC initiatives. The first is to start EC
in one division (GE started in its Lighting Division) and slowly go
to alldivisions. The second is to also use the site as a
publicbidding marketplace to generate commission income.
Even though GE was successful with its e-procurementsystem, it
could not reach its original plan of 100 percente-procurement due
to connectivity difficulties with SMEs.By 2001, of its 30,000
suppliers, roughly 25 percent(7,500 suppliers) were performing the
critical procurementmissions on the Web. Another 7,500 or so were
connectedto GE using the dated EDI networks. That left
another15,000 suppliers that relied mainly on manual processes
toconduct business with GE (Moozakis 2001). (Connectingwith SMEs is
a common challenge in B2B implementation.)
Questions1. List and briefly discuss the benefits of GXS to
GE.
2. List and briefly discuss the benefits of GXS to
GE’scustomers.
3. Why did GE sell the system?
REFERENCES FOR ONLINE FILE W5.11gxs.com (accessed May
2009).Moozakis, C. “GE Scales Back.” Internet Week, May 10,
2001. orafaq.com/maillist/oracle-l/2001/05/11/1056.htm (accessed
January 2008).
Trading Process Network. “Extending the Enterprise:TPN Post Case
Study—GE Lighting.” TradingProcess Network, 1999.
tpn.geis.com/tpn/resource_center/casestud.html (no longer available
online).
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W5.20 Part 3: Business-to-Business E-Commerce
ONLINE FILE W5.12 Application Case
CHEMCONNECT: THE WORLD COMMODITY CHEMICAL EXCHANGEToday, buyers
and sellers of chemicals and plastics canmeet electronically in a
large Internet public marketplace(founded in 1995) called
ChemConnect (chemconnect.com),which was purchased by
Intercontinental Exchange (ICE) inJuly 2007. The international
community of membersincludes more than 9,000 companies from over
150 coun-tries worldwide. Global chemical industry leaders, such
asBP, Dow Chemical, BASF, Hyundai, Sumitomo, and manymore, make
transactions over ChemConnect every day inreal time. They save on
transaction costs, reduce cycletime, and find new markets and
trading partners around the globe. It was the first B2B e-market in
the chemicalindustry.
ChemConnect provides a link to the Global ExchangeServices (GXS,
gxs.com) trading marketplace, which man-ages a network of about
150,000 trading partners world-wide including 70 percent of Fortune
500 companies.Members are producers, consumers, distributors,
traders,and intermediaries involved in the chemical
industry.ChemConnect offers its members a Trading Center withthree
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 exposes sell-ers to
many potential new customers. It provides auto-mated 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 automatingrequests for quotes,
proposals, and new suppliers. The cen-ter enables a member to
negotiate more efficiently withexisting business partners as well
as with new companiesthe member may invite to the table—all in
complete pri-vacy. The Trading Center is a highly effective way to
getthe best prices and terms available on the worldwide mar-ket. In
addition, members can access a database contain-ing more than
63,000 chemicals and plastics—virtuallyany product members are ever
likely to look for. In addi-tion to trading, the exchange provides
back-end fulfillmentservices (e.g., payments, delivery).
All three trading places provide up-to-the-minutemarket
information (mostly financial and news, viabloomberg.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 mem-bers. ChemConnect also offers systems for connecting
com-panies’ back-end systems with their business partners andwith
ChemConnect itself.
The overall benefits of ChemConnect to its membersare more
efficient business processes, lower overalltransaction costs, and
time saved during negotiation andbidding. For example, conducting a
reverse auction in atrading room enables buyers to save up to 15
percent ofa product’s cost in just 30 minutes. The same
processusing manual bidding methods would take several weeksor
months.
ChemConnect continues to grow, adding members andincreasing its
trading volume each year. One of the com-pany’s success factors is
that 40 large chemical companieshold about one-third of the
company’s stock. Another fac-tor is the fact that about 44 percent
of the industry usesthe exchange on a regular basis.
ChemConnect has expanded its coverage to becomea more
diversified company, offering midstream energy,such as ethanol,
natural gas, and other commodities. Ithas also added negotiation
solutions, collaboration hubs, data integration services, price
discovery features,and more. Also, its community has been
expanded.Participant companies include most large
producers,consumers, distributors, traders, and transportation
andlogistics companies within each product class in additionto
banks, hedge funds, and other interested financialinstitutions.
Finally, it offers an infrastructure fornegotiation (see
chemconnect.com/negotiation.html).
Questions1. List the benefits of ChemConnect to trading
companies.
2. Describe the different trading platforms.
3. List some of the capabilities of the system.
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Chapter Five: B2B E-Commerce W5.21
REFERENCES FOR ONLINE FILE W5.12Angwin, J. “Top Online Chemical
Exchange Is an
Unlikely Success Story.” Wall Street Journal Online,January 8,
2004. webreprints.djreprints.com/907660072246.html (accessed
January 2008).
chemconnect.com (accessed June 2010).Rappa, M. “Case Study:
ChemConnect—Managing the
Digital Enterprise.” 2006.
digitalenterprise.org/cases/chemconnect_text.html (accessed May
2009).
In order to succeed in B2B, and particularly in exchanges, it is
necessary to have several support services. Successful e-businesses
carefully manage partners, prospects, and customers across the
entire value chain, most often in a 24/7 envi-ronment. Therefore,
one should examine the role of solution technologies, such as call
centers and collaboration tools, increating an integrated online
environment for engaging e-business customers and partners. The use
of such solutions andtechnology appears under two names: supplier
relationship management (SRM) and partner relationship
management(PRM).
Partner Relationship Management (PRM)Corporate customers may
require additional services. For example, customers need to have
access to the supplier’s inven-tory status report so they know what
items a supplier can deliver quickly. Customers also may want to
see their historicalpurchasing records, and they may need private
showrooms and trade rooms. Large numbers of vendors are available
fordesigning and building appropriate B2B relationship solutions.
The strategy of providing suchcomprehensive, quality e-service for
business partners is sometimes called partner
relationshipmanagement (PRM).
In the context of PRM, business customers are only one category
of business partners.Suppliers, partners in joint ventures, service
providers, and others also are part of the B2B com-munity in an
exchange or company-centric B2B initiative. Companies with many
suppliers, suchas the automobile companies, may create special
programs for them. Such programs are calledsupplier relationship
management (SRM).
Supplier Relationship Management (SRM)One of the major
categories of PRM is supplier relationship management (SRM), in
which thepartners are the suppliers. For many companies (e.g.,
retailers and manufacturers), the ability towork properly with
suppliers is a major critical success factor. PeopleSoft (an Oracle
company),developed a model for managing relationships with
suppliers in real time.
PeopleSoft’s SRM Model. PeopleSoft’s cyclical SRM model (see
Schecterle 2003) is generic andcould be considered by any large
company. It includes 13 steps, as shown in Exhibit W5.13.1. The
details of the steps are shown in Exhibit W5.13.2. The core idea of
this model is that an e-supply chain is based on integration and
collaboration. The supply chain processes are con-nected, decisions
are made collectively, performance metrics are based on common
understanding,information flows in real time (whenever possible),
and the only thing a new partner needs inorder to join the SRM
system is a Web browser.
Implementing PRM and SRM is different from implementing CRM with
individual customers. For example, behavioraland psychological
aspects of the relationships are less important in PRM than in CRM.
However, trust, commitment,quality of services, and continuity are
more important in PRM. For details, see McNichols and Brennan
(2006) andMarkus (2006).
Online File W5.13 Partner and Supplier Relationship
Management
partner relationshipmanagement (PRM)Business strategy
thatfocuses on providingcomprehensive qualityservice to
businesspartners.
supplier relationshipmanagement (SRM)A comprehensiveapproach to
managing an enterprise’sinteractions with theorganizations that
supply the goods andservices it uses.
(continued)
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.21
-
W5.22 Part 3: Business-to-Business E-Commerce
Online File W5.13 (continued)
12 Pay
11 Resolve 9 Deliver
13Analyze1 Access
4 Negotiate5 Contract 6 Connect
7 Engage
8 Transact
2 IdentifySuppliers
3 Assess SupplierPerformance
Start
$
$
!
Forecasts
Inventory
Orders
Quality
Performance
Market Sites
Services
Direct
Indirect
XML
Browser
! 10 Receive
0.0
0.5
1.0
1.5
2.0
2.5
3.0
EDI
Browser
EXHIBIT W5.13.1 SRM from PeopleSoft
Source: Based on Schecterle, B. “Management and Extending
Supplier Relationships,” People Talk, April-June 2003.
(continued)
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.22
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Chapter Five: B2B E-Commerce W5.23
Online File W5.13 (continued)
Source: Compiled from B. Schecterle, “Managing and Extending
Supplier Relationships,” People Talk (April–June 2003). © 2005
Oracle. All rights reserved.
REFERENCES FOR ONLINE FILE W5.13Markus, L. “The Golden Rule.”
CIO Insight, July
2006.McNichols, T., and L. Brennan. “Evaluating Partner
Suitability for Collaborative Supply Networks.”
International Journal of Networking and VirtualOrganisations, 3,
no. 2 (2006).
Schecterle, B. “Managing and Extending SupplierRelationships.”
People Talk, April–June 2003.
Description
Identify all the resources required to meet the product or
service needs of the enterprise.
The availability of a large pool of approved suppliers improves
optionsdown the road.
Check past performance, testimonials, and stated
capabilities.Prices and other relevant terms count only when
combined.Identify and register trading partners. Award contracts to
the
appropriate suppliers.Bridge the enterprise and suppliers
through procurement procedures
everyone involved can see. Facilitate collaboration.Enable
interactions between the enterprise and suppliers. Show
suppliers your forecasted needs and their performance ratings.
Lookat their inventory and projections.
Collect orders from across the enterprise. Create purchase
orders and check them against budgets. Transmit purchase orders
using tendering and RFQ.
As goods are pulled from the supplier’s stock, wireless barcode
readersupdate inventory levels. Shipping invoices are generated,
and thegoods are delivered.
Wireless devices can help in determining whether everything
orderedarrives as planned, in good condition, and in the right
quantities.
Resolve any disputes and pay only if satisfied. Explain why
payment iswithheld.
Settle up with suppliers and check the actual cost against the
projected cost. Set an ERS (Electronic Receipt Settlement).
Analysis of the process can bring any problems to light and lead
toimprovements.
1. Access
2. Identify suppliers
3. Access supplier performance4. Negotiate5. Contract
6. Connect
7. Engage and share
8. Transact
9. Deliver
10. Receive
11. Resolve
12. Pay
13. Analyze
EXHIBIT W5.13.2 Managing SRM in Real TimeStep
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.23
-
W5.24 Part 3: Business-to-Business E-Commerce
Online File W5.14 A Model of Organizational Buyer Behavior
AgeGenderEthnicityEducationLifestylePsychological
makeupKnowledgeValuesPersonality
IndividualInfluences
PriceBrandPromotionsAdvertisingProduct qualityDesign
Buy or not?What to buy?Where (vendor)?When?How much to
spend?Delivery terms?Payments?
Buyers’ Decisions
AuthorityStatusPersuasiveness
InterpersonalInfluences
PaymentsDelivery
Web designContent and intelligent agentsSecurity
FAQsE-mailCall centersOne-to-one
EC Systems
LogisticsSupport
TechnicalSupport
CustomerService
Policies and proceduresOrganizational
structureCentralized/decentralized structureSystems
usedContracts
OrganizationalInfluences
DecisionProcess(Group orIndividual)
Market Stimuli
EXHIBIT W5.14.1
M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.24