Electronic Commerce

Business-to-Business E-Commerce

Prepared by: LEL First Prepared on: 28-2-2005 Last Modified on: Quality checked by: Module Group Copyright 2004 Asia Pacific Institute of Information Technology

Learning Outcomes
At the end of the lecture, you should be able to: Describe basic concept of the procurement process in businesses Identify differences between B2B ECommerce and B2C E-Commerce Describe the issues that are particular to B2B E-Commerce Explain the use of RFID, EDI and VPN in B2B E-Commerce
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OBJECTIVES
B2B definitions: purchasing, logistics, SCM. Direct versus indirect (MRO) procurement. Electronic data interchange (EDI), EDI standards, and EDI networks Supply chain management (SCM) and how businesses are using the Internet to improve it. Electronic marketplaces and portals that make B2B transactions easier, more efficient, and less costly.

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DEFINITIONS
Procurement:
Planning and managing all elements of the purchase process. Includes sourcing and purchasing.

Sourcing:
Identifying and qualifying suppliers of raw materials.

Purchasing:
Deciding what to buy, how much, lot sizes, price to pay, placing orders.

Logistics:
Managing the inbound movement of raw materials and supplies, and outbound movements of finished goods and services.

Supply chain management:

Managing the end-to-end industry value chain from product design to raw materials procurement, manufacturing, and distribution. May involve multiple trading partners (e.g. Tier 1 suppliers, etc.)
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TYPICAL PURCHASING PROCESS

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DIRECT VS. INDIRECT MATERIALS PURCHASING Direct materials: Raw materials that are inputs to a manufacturing process (and converted into finished products). Planned purchases, based on forecasted demand. Purchased from preferred suppliers using long-term contracts (contract purchasing). Key considerations: Price, quality, and delivery terms. Indirect materials (MRO): Other materials required for everyday functioning of a company. Unplanned purchases; numerous and small dollar amounts. Purchased from spot market as needed. Key consideration: Price.
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ONLINE PROCUREMENT
Why:
Motorola saved $2.5B in 2002 from a total spend of $40B in DM purchases (1 million P.O. and 6 million inventory receipts).

How:
MRO vendors such as W.W. Grainger provides 220,000+ products for sale arranged in product categories. Provides secure websites customized for each buyer.

Vendors:

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MRO: Ariba, MRO.com, W.W. Grainger.. DM: e-Steel, Chemconnect, Logistics: Schneider Logistics, Ryder, FedEx. Support: Paymaxx (payroll processing), HotOffice (group calendar/communications), Cylex (document storage).
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E-GOVERNMENT

U.S. federal and state governments use ecommerce to recruit employees, buy supplies, distribute benefits, collect taxes, etc. Pay.gov (U.S. Financial Management Service):

TreasuryDirect (U.S. Bureau of Public Debt):

Receiving tax, license, and other fee revenue ($2+ trillion), disbursing S.S. payments ($1.2+ trillion), tax refunds. Sell Treasury bills, notes, and notes to people and banks. Drivers license registration, selling to/buying from the state, full text of state laws, etc.
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My.ca.gov (State of California portal), myFlorida.org:

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PROCUREMENT TECHNOLOGIES
Radio frequency identification devices (RFID): Small chips affixed to merchandise that use radio transmissions to track inventory. Passive RFID tags receives radio signal from nearby transmitter, extracts some power from that signal to resend it back to transmitter. Electronic Data Interchange (EDI): Computer-to-computer transfer of standardized business information between two firms. Purchase orders, invoices, bills of lading, checks, remittance advices, shipping manifests, etc. Reduces paper flow, manual edits, and errors in transactions. Essential for automated B2B e-commerce.
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HISTORY OF EDI
1950s: Companies started using computers to store and process transaction records. 1968: Transportation Data Coordinating Committee (TDCC) formed and charged with creating a standard that shippers/carriers could use to share data as computer files rather than paper records. 1979: American National Standards Institute (ANSI) chartered the Accredited Standards Committee X12 (ASC X12) to create specifications of transaction sets for sharing business data. 1987: United Nations Economic Commission for Europe published EDIFACT (EDI for Administration, Commerce, and Transport) standards for data exchange in Europe. 2000: ASC X12 and UN/EDIFACT agreed to develop one common set of international EDI standards for global
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COMMON ASC X12 TRANSACTION SETS

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COMMON UN/EDIFACT TRANSACTION SETS

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EDI
Internet EDI:

(Continued)

Dramatic cost savings over historically used dedicated connections (leased lines, dial-up connections). Concerns regarding data security remedied via secure protocols. EDI transaction sets can be mapped 1:1 using XML data elements. ebXML (ebXML.org) allows EDI for e-business purposes.

Financial EDI (FEDI):

EDI transaction sets to manage EFT (e.g., exchange payment/ remittance info) across trading partners banks. Routed via financial VANs and data stored in ACH (automated clearing house) system in ACH format.

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VALUE ADDED NETWORKS (VAN)

Dedicated (leased or dial-up) networks to support secure transactions or EDI. Advantages of EDI:
VAN records all message activities in an audit log. VAN provides translation between different transaction sets used by trading partners. VAN performs automatic compliance checking. Users need to support only one communications protocol the VANs.

Disadvantages of EDI:
Cost: Enrollment fee, monthly maintenance fee, and transaction fee (initial cost of EDI software, hardware, and VAN enrolment: $50,000). Cumbersome and expensive for firms doing business with multiple trading partners, each using a different VAN.

Increasingly being replaced by Virtual Private Network (VPN).

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EDI/SCM AT BOEING
Background: Each airplane is custom-configured to purchasers specifications. Each airplane requires 1+ million parts and assemblies. 1997: Production and scheduling errors shut down two assembly operations for several weeks, costing Boeing $1.5 billion. Internet EDI (1997): Allows Boeing to share engineering specs with suppliers at low cost. Allows suppliers to deliver the right part/assembly at the right time.
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EDI/SCM AT BOEING (continued)

Internet EDI (1997) (continued): Informs suppliers of milestone achieved and schedule changes. By 1998, increased efficiencies and reduced errors lowered customer delivery time from 36 months to 10-12 months. PART (Part Analysis and Requirements Tracking): For 500 non-EDI Boeing customers to order replacement parts using Boeings secure website. Processes 5000 transactions/day at about 1/10th the cost of P.O./fax/ telephone orders. Parts delivered same or next day, increasing customer satisfaction.
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USING INTERNET FOR SCM

Why use Internet technologies in supply chains:

Rapidly share info about changing demand (and adjust quickly). Receive rapid notification of product design changes. Share product specs and documentation efficiently and at lower costs Increase the speed of processing transactions. Reduce the costs of handling transactions. Reduce errors in transaction data.

Keys to successful supply chains:

Continual communication/information sharing among partners. Building trust via continual communication.
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B2B PORTALS
Vertical portals or vortals (e.g., VerticalNet)
Industry-specific portals (verticals) offering news, research reports, trend analysis, and marketplaces/auctions to buy/sell raw materials or excess inventory from each other.
Password-protected access for customers to buy products/services. Offers negotiated price reductions on a limited selection of products. Also offers product usage guidelines, safety information, etc.

Customer portals (e.g., Cisco, Dell):

Private marketplace/hubs (e.g., GE Lighting, Honeywell):

Uses vendor software (e.g., Ariba) to set up a private eprocurement site providing auctions, request for quote postings, vendor bidding services, etc. Saved United Technologies $400M+ from $3B+ purchase since 1996.
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B2B MARKETPLACES
Independent industry marketplaces: Focuses on single industries, often by independent third parties. In the hotel industry 2200+ exchanges in 2000; less than 100 by 2002. Covisint: Automotive marketplace created by GM, Ford, and Chrysler in 2000 (merged from Fords and GMs private exchanges). Manages $250B of purchases annually. Three CEOs, who dont trust each other. Worlds greatest B2B disaster waiting to happen. Why failures: Too many marketplaces in one industry, none having critical mass. No barriers to entry for competitors. Added little value to customers, esp. sellers facing price pressures.
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CHARACTERISTICS OF B2B MARKETPLACES

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Summary of Main Teaching Points

Basic concept of the procurement process in businesses The differences between B2B ECommerce and B2C E-Commerce The issues that are particular to B2B E-Commerce The use of RFID, EDI and VPN in B2B E-Commerce

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Key Terms you must be able to use

If you have mastered this topic, you should be able to use the following terms correctly in your assignments and exams:

EDI VAN VPN E - SCM

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Question and Answer Session

Questions?
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