Chapter 5 E-Commerce Selling and Buying in Private

Chapter 5 E-Commerce: Selling and Buying in Private EMarkets Class Exercises Jason Chou-Hong Chen, Ph. D. Professor of MIS Graduate School of Business, Gonzaga University Spokane, WA 99223 USA chen@jepson. gonzaga. edu 1 ã Prentice Hall & Dr. Chen, Electronic Commerce

EC Application Case 5. 4: How the State of Pennsylvania Sells Surplus Equipment (p. 233) • • #1 Why is heavy equipment amenable to such auctions? It is high value, with potential buyers that are physically distant or unable to attend a specific time auction. #2 Why did the state generate 20 percent more in revenues with the online auction? By allowing a larger potential market, the price of the items increased. 2 ã Prentice Hall & Dr. Chen, Electronic Commerce

• #3. Why do you need an intermediary to conduct such an auction? • The intermediary may help increase the potential market pool as well as supplying the needed technical infrastructure. • #4. Comment on the number of bidders and bids as compared with off-line auctions. • The numbers increase as more buyers have access. 3 ã Prentice Hall & Dr. Chen, Electronic Commerce

EC Application Case 5. 6: Reverse Auctions Become a Diplomatic Tool (E-Tendering case) (p. 241) • #1. List the drivers of the application. • The system attempts to reduce costs, time spent and vendor alienation. • #2. What is the role of the intermediary? (See fedbid. com. ) • The intermediary provides the IT systems and conducts the auction. • #3. What are the success factors in this case? • Success factors include cost savings, a reduction in time used in the process and an understanding of the fairness of the system. 4 ã Prentice Hall & Dr. Chen, Electronic Commerce

Discussion Board Questions • **4. Discuss and compare all the mechanisms that aggregators of group purchasing can use (name an application) (GPO) • Companies can use the internal aggregation and external aggregation. • Internal aggregation relies on the company to create a critical mass of purchases across several operating divisions to make group purchasing worthwhile. This system provides a company with a large degree of control over when purchases are made and the specific items purchased. – This system only works for very large firms. • External aggregation allows smaller firms to work with others to create a critical mass for purchases. This system relies on several independent firms, and therefore the individual firms may not have the level of control that one large internal aggregator would have. 5 ã Prentice Hall & Dr. Chen, Electronic Commerce

• 1. Explain how a catalog-based sell-side emarketplace works and discuss its benefits. • Sell-side catalog-based marketplaces are very similar to business-to-consumer catalog-based marketplaces. They provide a service that allows buyers to easily select and purchase products from a catalog of potential goods provided by the seller. • Sellers are able to easily display a large variety of items to their potential buyers. • Buyers are able to make their purchases easily through this online system. 6 ã Prentice Hall & Dr. Chen, Electronic Commerce

• 2. Discuss the advantages of selling through online auctions over selling from catalogs. What are the disadvantages? • Selling through auctions has several advantages including low overhead and operational costs if a third-party auction is used, the ability to sell oneof-a-kind items easily, the ability to sell at the prevailing market price, and the ability to change products and pricing quickly. • Disadvantages might include limited selling times and reduced control over price. 7 ã Prentice Hall & Dr. Chen, Electronic Commerce

• 3. Discuss the role of intermediaries in B 2 B. • Intermediaries in business-to-business electronic commerce generally perform some sort of value-added operation. • These intermediaries provide value through their ability to move goods through the value chain in a manner that assists both those upstream and downstream. (see next slides) 8 ã Prentice Hall & Dr. Chen, Electronic Commerce

Striving for Competitive Advantage • Firm level: Industry & Competitive Analysis – Competitive Forces Model – Competitive Strategy • Business level – Value-Chain Analysis 9 ã Prentice Hall & Dr. Chen, Electronic Commerce

PORTER’S FIVE COMPETITIVE FORCES MODEL NEW MARKET ENTRANTS • Switching cost • Access to distribution channels • Economies of scale THE FIRM INDUSTRY COMPETITORS • Cost-effectiveness • Market access • Differentiation of product or service • Selection of suppler • Threat of backward integration SUPPLIERS SUBSTITUTE PRODUCTS & SERVICES Threats Bargaining power • Redefine products and services • Improve price/performance • Buyer selection • Switching costs • Differentiation CUSTOMERS 10 ã Prentice Hall & Dr. Chen, Electronic Commerce Dr. Chen, The Trends of the Information Systems Technology N TM -10

The Five Forces Model and IS • The Five Forces Model provides a way to think about how information resources can create competitive advantage. • Using Porter’s Model, General Managers can: – Identify key sources of competition they face. – Recognize uses of information resources to enhance their competitive position against competitive threats – Consider likely changes in competitive threats over time 11 ã Prentice Hall & Dr. Chen, Electronic Commerce N

Porter’s Five Forces Model and Value Chain • The value chain model highlights specific activities in the business where competitive strategies can be best applied and where information systems are most likely to have a strategic impact. • Therefore, the value chain model can be employed to identify specific, critical leverage points where a firm can use IT most effectively to enhance its competitive position. 12 ã Prentice Hall & Dr. Chen, Electronic Commerce

Figure 1. 6 (2. 4) Process View of the Firm: The Value Chain e tiv eti mp Co Ad va nta ge (Value) 13 ã Prentice Hall & Dr. Chen, Electronic Commerce N

Using Information Resources to Alter the Value Chain • The Value Chain model suggest that competition can come from two sources: – Lowering the cost to perform an activity and – Adding value to a product or service so buyers will be willing to pay more. • Lowering costs only achieves competitive advantage if the firm possesses information on the competitors’ cost structure • Adding value is a strategic advantage if a firm possesses accurate information regarding its customer such as: which products are valued? Where can improvements be made? When to … 14 ã Prentice Hall & Dr. Chen, Electronic Commerce N

The Value System: Interconnecting relationships between organizations Upstream value Firm value Downstream value 15 ã Prentice Hall & Dr. Chen, Electronic Commerce N

Business Strategies and its Competitive Advantage Differentiation Cost Focus Differentiation Focus Industrial economy Competitive Mechanism ã Prentice Hall & Dr. Chen, Electronic Commerce Dr. Chen, The Trends of the Information Systems Technology Growth Particular Segment only (Narrow Target) Cost Leadership Alliance Industry wide (Broad Target) Uniqueness Perceived by Customer Innovation Competitive Scope Lower Cost Position Knowledge-based economy 16 N TM -16

Internet Exercise #5. Visit supplyworks. com and procure. com. Examine how each company streamlines the purchase process. How do these companies differ from ariba. com? • These firms provide software solutions that automate Supplier Resource Management. The solutions allow tighter integration and lower transaction costs between buyers and sellers. The concentration is on solutions for the supplyside. While ariba. com provides similar solutions, they also focus on buy-side and complete supply chain integration. 17 ã Prentice Hall & Dr. Chen, Electronic Commerce

Real-World Case: Eastman Chemical Makes Procurement a Strategic Advantage (p. 256) #1. Enter perfect. com and find information about the capabilities of Perfect. Picture. Write a report. • Answers will vary. #2. Why did Eastman Chemical start first with eprocurement rather than with the sell-side? You may want to visit eastman. com to learn more about the company. • The company was focused on reducing the cost of MRO purchases to make operations more efficient. 18 ã Prentice Hall & Dr. Chen, Electronic Commerce

#3. In July 2000, Eastman Chemical introduced an EC project that enables buyers to participate in Eastman’s private online price negotiations using Live. Exchange from Moai (moai. com). Explain how the software works and why it is referred to as “dynamic commerce. ” • The software allows different groups to participate in product negotiation. It is “dynamic commerce” because the addition of new purchasers can dramatically affect pricing and availability for products. #4. Which of the problems cited in this case can be solved by other EC applications? Relate your answer to Ariba products (ariba. com). • Answers will vary. 19 ã Prentice Hall & Dr. Chen, Electronic Commerce