Lecture E-Commerce - Chapter 16: B2B E-commerce - Supply chain management and collaborative commerce

In this chapter students will be able to: B2B e-commerce & supply chain management, the growth of B2B- industry forecasts, potential benefits of B2B e-commerce, types of procurement, the role of existing legacy computer systems,...

CSC 330 E-Commerce

Teacher

Ahmed Mumtaz Mustehsan

GM-IT CIIT Islamabad

Virtual Campus, CIIT

COMSATS Institute of Information Technology

T1-Lecture-16

B2B E-commerce: Supply Chain

Management and Collaborative

Commerce

Chapter-12

For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, Inc

B2B E-Commerce & supply Chain Management

B2B Trade in 2010 is US only was $ 16 Trillions and with B2B e-commerce was $ 3.6 Trillions

Some Basic Terminologies:

Total Inter-firm Trade

The total flow of value among firms

Automated Order Entry systems

Involved the use of telephone modems to send digital

B2B E-Commerce & supply Chain Management

Some Basic Terminologies: (Continued)

Selle- side Solutions

Seller biased market that are owned by ; and show

only goods from, a single seller

EDI (Electronic Data Interchange)

A communication standard for sharing business

documents and settlement information among a small number of firms

Buyer-side solutions:

Buyer biased market that are owned by buyers and

that aimed to reduce the procurement cost of supplies for buyers

B2B E-Commerce & supply Chain Management

Some Basic Terminologies: (Continued)

Online catalogue of products made available to the

public marketplace by a single supplier

Net Marketplace

Brings hundreds to thousands of suppliers and buyers into a single internet-based environment to conduct

trade

B2B E-Commerce & supply Chain Management

Some Basic Terminologies: (Continued)

Private Industrial Networks/

Private Trading Exchange (PTX)

Internet based Communications environments that

extend far beyond procurement to encompass truly

collaborative commerce

The Growth of B2B- Industry Forecasts

In the period 2010 to 2014 B2B E-Commerce projected growth was 30% to 35% of total inter firm trade

Not all industries similarly affected by B2B

e-commerce

Not all industries would benefit equally

Factors influencing move to e-commerce

Significant utilization of EDI

Large investments in IT and Internet infrastructure

e.g., aerospace and defense, computer, and industrial equipment

Market concentrated on purchasing and/or selling or both are ripe for B2B growth e.g., energy, chemical

industries, Health Insurance (National Medical Record)

Potential Benefits of B2B E-commerce

Lower administrative costs

Lower search costs for buyers

Reduced inventory costs

◦Increasing competition among suppliers

(increasing price transparency)

◦Reducing inventory carried

Lower transaction costs:

◦Eliminating paperwork

◦Automating parts of procurement process

Increased production flexibility by ensuring

just-in-time parts delivery

Improved quality of products by increasing

cooperation among buyers and sellers

Decreased product cycle time by sharing of

designs and production schedules

Increased opportunities for collaborating with

suppliers and distributors

Greater price transparency

Potential Benefits of B2B E-commerce

The Procurement Process and the Supply Chain

Steps in procurement process:

Deciding who to buy from and what to pay

Completing transaction

The Procurement Process

Types of Procurement

Firms purchase two types of goods

1.Direct goods: integrally involved in production

process

2.Indirect goods: all goods not directly involved in

production process (MRO goods)

Firms use two methods to purchase

1.Contract purchasing:

◦ Involves long-term written agreements to

purchase specified products, with agreed-upon

terms and quality

1.Spot purchasing:

◦ Involves purchase of goods based on

immediate needs in larger marketplaces that

involve many suppliers

Types of Procurement

Procurement is highly information intensive and

labor intensive—3.3 million U.S workers

Use of Internet can simplify process and reduce

Search, Research, Negotiating costs

Multi-tier supply chain

◦Complex series of transactions between firm and thousands of suppliers

The Multi-Tier Supply Chain

The Role of Existing Legacy

Computer Systems

Legacy computer systems

Generally older mainframe and minicomputer systems used to manage key business processes within firm

MRP systems (Materials Requirements Planning)

Enable firms to predict, track, and manage parts of

complex manufactured goods Generate Production schedule and required BoM to meet the schedule

ERP systems (Enterprise Resource planning)

More sophisticated MRP systems that include Human Resources and Financial components

Received Purchase Order is entered in to ERP to

determine the BoM, schedule, HR requirements,

Invoice against P.O and payments to the suppliers

Trends in Supply Chain Management

and Collaborative Commerce

Supply chain management (SCM):

◦Wide variety of activities that firms and industries use

to coordinate key players in their procurement

process

Major developments in SCM

1.Supply chain simplification

2.Electronic Data Interchange

3.Supply Chain Management systems

4.Collaborative Commerce

1 Supply Chain Simplification

Simplified Procurement Process

Essential for Just-In-Time production models

Typically achieved by:

Working with strategic group of suppliers to reduce

product and administrative costs, while improving quality

Purchasing under long-term contracts; ensured certain business to the selected supplier against; specified quality, cost, and timing goals

May involve Joint product development and design

◦Integration of computer systems

◦Tight coupling: A method for ensuring that a suppliers precisely deliver the order parts, at a specific time and particular location, to ensure the production process is

2 Electronic Data Interchange (EDI)

Broadly defined communications protocol for

exchanging documents among computers

EDI provides for exchange of critical business

information between computer applications supporting wide variety of business processes

The Evolution of EDI as a B2B Medium

1 Standardization of Documentation such as P.O, invoice, shipping documents, payments exchanges

electronically.

2 Documents were replaced with Production Process, Schedule and Inventory

3 Suppliers were given online access to the production system and inventory;

Eliminated manual procurement

2 Electronic Data Interchange (EDI)

Strength and Weakness of EDI

The ability to support direct commercial transection

among strategically related firms is both a strength as

well as a weakness ? Strength we have studied !!

The weakness:

Not suited for the development of e-marketplace, a

digital arena to negotiate best price

Permit bilateral not multilateral dynamic relationship of a tru marketplace

Does not provide price transparency among a large

number of suppliers

Does not have rich communication (e-mail, graphic)

Expensive proposition requires small-firms to implement EDI to supply large firms

3 Supply Chain Management Systems

Focused upon ERP system and Continuous

Replenishment:

SCM, Continuously link activities of buying, making,

and moving products from suppliers to purchasing firms

Also Integrates demand side of business equation by including order entry system in the process

With SCM system and continuous replenishment, the inventory is eliminated and production begins only when order is received (Demand manufacturing)

Hewlett Packard’s SCM system: elapsed time from

order entry to shipping PC is 48 hours

The delivery through third party is monitored as it is

tracked through manufactured SCM system

Supply Chain Management Systems

Collaborative Commerce

Use of digital technologies enabling organizations to collaboratively design, develop, build, and manage

products through life cycles

Direct extension of SCM systems and supply chain

Involves customers and suppliers in the development

of products for the most parts with the development of rich communication environment

Elements of a Collaborative Commerce System

Two Types of Internet-Based B2B Commerce

1 Net marketplaces:

Bring together potentially thousands of sellers and

buyers in single digital marketplace operated over Internet

Transaction-based

Support many-to-many as well as one-to-many

relationships

2 Private industrial networks:

Bring together small number of strategic business

partner firms that collaborate to develop highly efficient supply chains

Relationship-based

Support many-to-one and many-to-few relationships

Largest form of B2B e-commerce

Generate 10 times the reveneue as that of Net

marketplace

Two Main Types of Internet-Based B2B

Commerce

Net Marketplaces

Various ways to classify Net marketplaces:

Pricing mechanism, nature of market served,

ownership

By business functionality

◦ What businesses buy? (Direct vs Indirect goods)

◦ How business buy? (Spot purchasing vs

Pure Types of Net Marketplaces

Other Chacteristics of Net Marketplaces

 Most common type of Net marketplace

 Electronic catalogs representing products of

thousands of direct manufacturers

 Typically independently owned intermediaries

 Offer industrial customers single source to

purchase indirect goods on spot basis

 Typically horizontal; serve many different

industries with products from many different

suppliers

 Usually fixed price; discounts for large customers

 Example: W.W Grainger

E-distributors

E-procurement Net Marketplaces

 Independently owned intermediaries

 Connect hundreds of suppliers of indirect goods

 Firms pay fees to join market

 Typically for long-term contractual purchasing of

indirect goods

 Revenues from transaction fees, licensing

consultation services and software, network fees

 Offer value chain management (VCM) services

 VCM: Automation of entire procurement process on buyer side, automation of selling business processes

on seller side

 Many-to-many market

E-procurement Net Marketplaces

Independently owned online marketplaces

Connect hundreds to thousands of suppliers and

buyers in dynamic, real-time environment

Typically vertical markets; spot purchasing

requirements of large firms in single industry

Charge commission fees on transaction

Variety of pricing models used

◦Online negotiation, auction, RFQs/RFPs, fixed

Tend to be buyer-biased

Suppliers disadvantaged by competition

Many have failed due to low liquidity

Exchanges

Industry Consortia

Industry-owned vertical markets

Enable buyers to purchase direct inputs from limited set of invited participants

Emphasize long-term contractual purchasing, stable relationships, creation of data standards

Ultimate objective:

◦Unification of supply chains within entire industries through common network and computing platform

Make money from transaction and subscription fees

Offer many different pricing mechanisms

◦Auctions, fixed prices, RFQs, negotiated

Can force suppliers to use consortia’s networks

Industry Consortia

The Long-Term Dynamics of Net Marketplaces

Pure Net marketplaces moving from “electronic

marketplace” vision toward more central role in

changing procurement process

Consortia and exchanges beginning to work together in selected markets

E-distributors joining large e-procurement systems and industry consortia as suppliers

Movement from simple transactions for spot purchasing

to longer-term contractual relationships involving both direct and indirect goods

Net Marketplace Trends

End of: T1-Lecture-16

Chapter-12 B2B E-commerce: Supply Chain Management and Collaborative

Commerce

Thank You