company-centric b2b and e-procurement

Company-Centric B2Band E-Procurement

范錚強2006 update

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General Motors’ B2B Initiatives

The ProblemBecause the automotive industry is very competitive, GM is always looking for ways to improve its effectiveness GM expects to custom-build the majority of its cars by 2005The company hopes to use the system to save billions of dollars by reducing its inventory of finished cars (why inventory??)

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General Motors’ B2B Initiatives (cont.)

GM sells custom-designed cars online through its dealers’ sites avoiding channel conflict 通路衝突：主要的產品提供者與其通路之間的競爭This collaboration requires sharing information with dealers and suppliersOperational problems

disposing of manufacturing machines that are no longer sufficiently productive procurement of commodity products

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The SolutionGM established an extranet infrastructure called ANX (Automotive Network eXchange)ANX has evolved into the consortium exchange covisint.com supported by other automakers台灣： TANX 計畫

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Capital assets problem GM implemented its own electronic market from which forward auctions are conducted

Resource procurement problemGM automated the bidding process using reverse auctions on its e-procurement site

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The ResultsWithin just 89 minutes after the first forward auction opened, eight stamping presses were sold for $1.8 million Off-line method, a similar item would have sold for less than half of its online price, and the process would have taken 4 to 6 weeks

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Online reverse auction prices are significantly lower than the prices the company had been paying for the same items previously negotiated by manual tendering Administrative costs per order have been reduced by 40%Most GM dealers and thousands of GM’s suppliers are connected on a common extranet platform

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What can we learn…Involvement of a large company in three EC activities:

1.connecting with dealers and suppliers through an extranet

2.electronically auctioning used equipment to customers

3.conducting purchasing via electronic bidding

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B2B transactionsCompany can be a seller, offering goods or services to many corporate buyersCompany can be a buyer, seeking goods or services from many corporate sellers (suppliers)

A company can employ auctionsuse electronic catalogsuse other market mechanisms

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商務活動資訊流商流金流物流

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商務活動 2

賣方買方

資訊流：資訊處理、產品型錄傳達、訂單處理

商流：促銷、詢議價、訂單管理、對漲、所有權轉移金流：支付、融資、風險承擔物流：實體流通、實體持有

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Concepts, Characteristics, and Models of B2B EC

Basic B2B conceptsBusiness-to-business e-commerce (B2B EC): Transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks; also known as eB2B (electronic B2B) or just B2B

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Concepts, Characteristics, and Models of B2B EC (cont.)

B2B characteristicsParties to the transaction

Online intermediary: An online third party that brokers a transaction online between a buyer and a seller; can be virtual or click-and-mortar

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Types of B2B transactions

Spot buyingThe purchase of goods and services as they are needed, usually at prevailing market prices

Strategic sourcingPurchases involving long-term contracts that are usually based on private negotiations between sellers and buyers

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Types of materials

Direct materialsMaterials used in the production of a product (e.g., steel in a car or paper in a book)

Indirect materialsMaterials used to support production (e.g., office supplies or light bulbs)

MROs (maintenance, repairs, and operations)Indirect materials used in activities that support production

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Marketplaces : Direction of trade

Vertical marketplacesMarkets that deal with one industry or industry segment (e.g., steel, chemicals)

Horizontal marketplacesMarkets that concentrate on a service, material, or a product that is used in all types of industries (e.g., office supplies, PCs)

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Marketplaces : Direction of trade

產業垂直市集商品水平市集

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Basic B2B transaction types

Sell-sideOne seller to many buyers

Buy-sideOne buyer from many sellers

ExchangesMany sellers to many buyers

Collaborative commerce （特定對象）Communication and sharing of information, design, and planning among business partners

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Models of B2B EC

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company-centric transactions

One-to-many and many-to-one: Company-centric EC

E-commerce that focuses on a single company’s buying needs (many-to-one, or buy-side) or selling needs (one-to-many, or sell-side)

Private e-marketplacesMarkets in which the individual sell-side or buy side company has complete control over participation in the selling or buying transaction

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Many-to-many: exchanges

Exchanges (trading communities or trading exchanges)

Many-to-many e-marketplaces, usually owned and run by a third party or a consortium, in which many buyers and many sellers meet electronically to trade with each other; also called trading communities or trading exchanges

Public e-marketplacesThird-party exchanges that are open to all interested parties (sellers and buyers)

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Supply chain relationships in B2B

Supply chain process consists of a number of interrelated subprocesses and roles

acquisition of materials from suppliersprocessing of a product or servicepackaging it and moving it to distributors and retailerspurchase of a product by the end consumer

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Benefits of B2B

Eliminates paper and reduces administrative costs.Expedites cycle timeLowers search costs and time for buyersIncreases productivity of employees dealing with buying and/or selling Reduces errors and improves quality of services.Reduces inventory levels and costsIncreases production flexibility, permitting just-in-time deliveryFacilitates mass customizationIncreases opportunities for collaboration

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One-to-Many: Sell-Side Marketplaces

Sell-side e-marketplace: A Web-based marketplace in which one company sells to many business buyers from e-catalogs or auctions, frequently over an extranetThree major direct sales methods:1.selling from electronic catalogs2.selling via forward auctions 3.one-to-one selling

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One-to-Many: Sell-Side Marketplaces (cont.)

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B2B sellersclick-and-mortar manufacturers or intermediaries, usually distributors or wholesalers

Customer serviceonline sellers can provide sophisticated customer services

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Configuration and customizationcustomize productsget price quotessubmit orders

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Major benefits of direct sales are:Lower order-processing costs and less paperworkA faster ordering cycleFewer errors in ordering and product configurationLower search costs of products for buyers Lower search costs of finding buyers for sellersSellers can advertise and communicate onlineLower logistics costs Ability to offer different catalogs and prices to different customers

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Selling via Auctions

Using auctions on the sell side

Revenue generationCost savingsIncreased page viewsMember acquisition and retention

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Selling via Auctions (cont.)

Selling from the company’s own siteThe company will have to pay for infrastructure and operate and maintain the auction siteIf then company already has an electronic marketplace for selling from e-catalogs, the additional cost may not be too high

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Selling via Auctions (cont.)

Using intermediariesAn intermediary may conduct private auctions for a seller, either from the intermediary’s or the seller’s siteA company may choose to conduct auctions in a public marketplace, using a third-party hosting company

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Benefits of using intermediaries

no additional resources are requiredauction set up to show the branding (company name) of the merchant rather than the intermediary’s nameintermediary does the work of:

controlling data on Web traffic, page views, and member registrationsetting all the auction parameters (transaction fee structure, user interface, and reports)integrating the information flow and logistics

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One-from-Many: Buy-Side Marketplaces and E-Procurement

Buy-side e-marketplace: A corporate-based acquisition site that uses reverse auctions, negotiations, group purchasing, or any other e-procurement method

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Procurement methods

Buy from manufacturers, wholesalers, or retailers from their catalogs, and possibly by negotiationBuy from the catalog of an intermediary that aggregates sellers’ catalogs or buy at industrial mallsBuy from an internal buyer’s catalog in which company-approved vendors’ catalogs, including agreed upon prices, are aggregated

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E-Procurement

e-procurement: The electronic acquisition of goods and services for organizations

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E-Procurement

Conduct bidding or tendering (a reverse auction) in a system where suppliers compete against each otherBuy at private or public auction sites in which the organization participates as one of the buyersJoin a group-purchasing system that aggregates participants’ demand, creating a large volumeCollaborate with suppliers to share information about sales and inventory, so as to reduce inventory and stock-outs and enhance just-in-time delivery

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Inefficiencies in traditional procurement management

Procurement management: The coordination of all the activities relating to purchasing goods and services needed to accomplish the mission of an organizationMaverick buying: Unplanned purchases of items needed quickly, often at non-pre-negotiated, higher prices

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Benefits of e-procurement

Increasing the productivity of purchasing agentsLowering purchase prices through product standardization and consolidation of purchasesImproving information flow and management

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Benefits of E-Procurement (cont.)

Minimizing the purchases made from noncontract vendors. Improving the payment processEstablishing efficient, collaborative supplier relationsEnsuring delivery on time, every timeReducing the skill requirements and training needs of purchasing agentsReducing the number of suppliersStreamlining the purchasing process, making it simple and fast

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Benefits of E-Procurement (cont.)

Reducing the administrative processing cost per orderImproved sourcingIntegrating the procurement process with budgetary control in an efficient and effective wayMinimizing human errors in the buying or shipping processMonitoring and regulating buying behavior

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Implementing E-Procurement

Implementing e-procurement—major e-procurement implementation issues

Fitting e-procurement into the company EC strategyReviewing and changing the procurement process itselfProviding interfaces between e-procurement with integrated enterprisewide information systems such as ERP or supply chain management (SCM)

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Implementing E-Procurement (cont.)

Coordinating the buyer’s information system with that of the sellers; sellers have many potential buyersConsolidating the number of regular suppliers to a minimum and assuring integration with their information systems, and if possible with their business processes

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Buy-Side E-Marketplaces: Reverse Auctions

One of the major methods of e-procurement is through reverse auctions (tendering or bidding model)

request for quote (RFQ): The “invitation” to participate in a tendering (bidding) system

The reverse auction method is the most common model for large MRO purchases as it provides considerable savings

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Reverse Auctions (cont.)

Conducting reverse auctionsThousands of companies use the reverse auction modelThey may be administered from a company’s Web site or from an intermediary’s siteThe bidding process may last a day or moreBidders may bid only once, but bidders can usually view the lowest bid and rebid several times

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Reverse Auction: The Process

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Other E-Procurement Methods

Internal marketplace: The aggregated catalogs of all approved suppliers combined into a single internal electronic catalog

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Benefits of internal marketplaces

corporate buyers quickly find what they want, check availability and delivery times, and complete an electronic requisition formreduce number of regular supplierseasy financial controls

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Other E-Procurement Methods (cont.)

Industrial mallsDistributors that aggregate products from hundreds or thousands of suppliers in one place

Horizontal—carrying MRO (nonproduction) materials for use in a variety of industriesVertical—carrying products used by one industry but at various segments of the supply chain

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E-auctionssellers are increasingly motivated to sell surpluses and even regular products via auctionse-auctions provide an opportunity to buyers to find inexpensive or unique items fairly quickly

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Group purchasing: The aggregation of orders from several buyers into volume purchases so that better prices can be negotiated

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Internal aggregation—companywide orders are aggregated using the Web and replenished automaticallyExternal aggregation—provide SMEs with better prices, selection, and services by aggregating demand online and then either negotiating with suppliers or conducting reverse auctions

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Purchasing direct goodsE-purchasing direct goods allows buyers to:

get them fasterreduce the unit costreduce inventoriesavoid shortages of materialsexpedite their own production processes

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Electronic barteringBartering exchange: An intermediary that links parties in a barter; a company submits its surplus to the exchange and receives points of credit, which can be used to buy the items that the company needs from other exchange participants

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Infrastructure for B2B

Major infrastructures needed for B2B marketplaces

Telecommunications networks and protocolsServer(s) for hosting the databases and the applicationsSoftware for various activities for executing the sell-side activities, buy-side activities, PRM, and building a storefrontSecurity for hardware and software

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IntegrationIntegration with existing internal infrastructure and applications

EC applications of any kind need to be connected to the existing internal information systems

Integration with business partnersEC can be integrated more easily with internal systems than with external ones

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Managerial Issues

1. Can we justify the cost of B2B applications?

2. Which vendor(s) should we select?3. Which B2B model(s) should we use?4. Should we restructure our procurement

system?

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Managerial Issues (cont.)

5. What restructuring will be required for the shift to e-procurement?

6. What integration would be useful?7. What are the ethical issues in B2B?8. Will there be massive disintermediation?

company-centric b2b and e-procurement

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