E-commerce 2014 business technology society tenth edition Kenneth

Chapter 12 B 2 B E-commerce: Supply Chain Management and Collaborative Commerce Copyright ©

Volkswagen Builds Its B 2 B Net Marketplace Why didn’t Volkswagen want to use a more open or public electronic exchange for its parts supply? Why didn’t it join an industry consortium such as Covisint? n What kinds of services are provided by VWGroup. Supply? n What is e. CAP and who benefits from its use? n Do you think suppliers are disadvantaged by this B 2 B marketplace? n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -3

Trends in B 2 B E-commerce Flexibility: growing emphasis on rapid-response and optimal supply chains n Supply chain visibility—real time n Social commerce and customer intimacy n v Social commerce is a subset of electronic commerce that involves social media, online media that supports social interaction, and user contributions to assist online buying and selling of products and services. Large firms splinter global B 2 B systems into productand region-centered systems n Big data and growing use of business analytics n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -4

Trends in B 2 B E-commerce Big data and growing use of business analytics n Influence of mobile, social, and cloud platforms n Sustainable supply chains n v There is a growing need for integrating environmentally sound choices into supply-chain management. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -5

Defining B 2 B Commerce n Before Internet: v B 2 B transactions called trade or procurement process n Total inter-firm trade: v Total flow of value among firms n B 2 B commerce: v All types of computer-enabled inter-firm trade n B 2 B e-commerce: v The portion of B 2 B commerce enabled by the Internet Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -6

The Evolution of B 2 B Commerce n Automated order-entry systems 1970’s v Seller-side solution using tele modems to send digital orders to companies such as Baxter Healthcare n Electronic data interchange (EDI) v Buyer-side solution aimed at reducing buyer cost v Hub-and-spoke system with buyers in the center v Serve vertical markets that provide products/services for a specific industry such as auto industry n B 2 B electronic storefronts are online catalogs of products available to the public by a single supplier Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -7

The Evolution of B 2 B Commerce n Net marketplaces bring many suppliers and buyers together into a single internet-based environment to do business n Private industrial networks enable buyer firms and their suppliers to share product design, development, marketing, inventory, prod scheduling and communication Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -8

Evolution of the Use of Technology Platforms in B 2 B Commerce Figure 12.

The Growth of B 2 B E-commerce n 2012– 2017: B 2 B e-commerce will grow from 40 to 42% of total inter-firm trade n Private industrial networks continue to play dominant role in B 2 B n Non-EDI B 2 B e-commerce most rapidly growing type of e-commerce n EDI still large but will decline over time Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -10

Growth of B 2 B Commerce 2000– 2016 Figure 12. 2, Page 753 SOURCES: Based on data from U. S. Census Bureau, 2013 a; authors’ estimates. Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -11

Industry Forecasts n Not all industries similarly affected by B 2 B e-commerce n Not all industries would benefit equally n Factors influencing move to e-commerce v Significant utilization of EDI v Large investments in IT and Internet infrastructure v Firms with heavy investment in EDI and technology will move faster and benefit most v Market concentrated on purchasing or selling Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -12

Potential Benefits of B 2 B E-commerce n Lower administrative costs n Lower search costs for buyers n Reduced inventory costs v Increasing competition among suppliers v Reducing inventory carried n Lower transaction costs: v Automation and elimination of paperwork n Increased production flexibility by ensuring just-in-time parts delivery Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -13

Potential Benefits of B 2 B E-commerce (cont. ) n Improved quality of products by increasing cooperation among buyers and sellers n Decreased product cycle time n Increased opportunities for collaboration n Greater price transparency n Increased visibility, real-time information sharing n However, some risk is posed by increased globalization and consolidation Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -14

Insight on Society: Class Discussion Where’s My i. Pad: Supply Chain Risk and Vulnerability n Why does concentrating production on fewer suppliers also concentrate risk? n How does globalization play a part in increased risk? n What types of procedures could be implemented, given increased globalization, to reduce risk? Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -15

The Procurement Process and the Supply Chain n Procurement process: v The way firms purchase materials they need to make products n Steps in procurement process v Deciding who to buy from and what to pay v Completing transaction v Each step is composed of many business processes and subactivities requiring data to be recorded in seller, buyer, and shipper information systems Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -16

The Procurement Process Figure 12. 3, Page 758 Copyright © 2014 Pearson Education, Inc.

Types of Procurement n Firms purchase two types of goods v Direct goods: Integrally involved in production process v Indirect goods: All goods not directly involved in production process (maintenance repair and ops (MRO) goods) n Firms use two methods to purchase v Contract purchasing: n Involves long-term written agreements to purchase specified products, with agreed-upon terms and quality v Spot purchasing: n Involves purchase of goods based on immediate needs in larger marketplaces that involve many suppliers Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -18

Types of Procurement (cont. ) n Procurement is highly information intensive and labor intensive v Requires managing information among many corporate systems v Involves 1. 2 million U. S. workers excluding those in transportation, finance, insurance, etc n Multi-tier supply chain v Complex series of transactions between firm and thousands of suppliers, supplying thousands of goods Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -19

The Multi-tier Supply Chain Figure 12. 4, Page 759 Copyright © 2014 Pearson Education,

The Role of Existing Legacy Computer Systems n Legacy computer systems v Generally, older mainframe and minicomputer systems used to manage key business processes within firm n Enterprise systems v Corporate-wide v Support/control all aspects of production, including Procurement n Finance n Human resources n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -21

Trends in Supply Chain Management n Supply chain management (SCM) v Activities used to coordinate key players in the procurement process n Major developments in SCM v v v Just-in-time and lean production that reduces waste in value chain Supply chain simplification Adaptive supply chains are single enterprise-wide SCM systems to achieve economies of scale, simplicity, and reduce cost Accountable supply chains are those where low wage labor conditions in developing countries are visible and morally acceptable to consumers in developed countries Sustainable supply chains are Lean, Mean and Green Electronic data interchange is a communication protocol for exchanging docs among company computers Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -22

Trends in Supply Chain Management n Major developments in SCM Supply chain management systems v Collaborative commerce is the use of digital technologies to permit orgs to collaborate on design, develop, build, and manage prods v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -23

Just-in-Time and Lean Production n Just-in-Time production v Method of inventory cost management where prods are delivered just in time for production v Seeks to eliminate excess inventory to bare minimum n Lean production v Set of production methods and tools v Focuses on elimination of waste throughout customer value chain, not just inventory Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -24

Supply Chain Simplification n Reducing size of supply chain v Working with strategic group of suppliers to reduce product and administrative costs and improving quality n May involve: v Joint product development and design v Integration of computer systems v Tight coupling n Ensuring precise delivery of ordered parts at specific times Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -25

Adaptive Supply Chains n Reducing centralization v They are agile, flexible, and responsive v Reduce risks caused by relying on single suppliers who are subject to local instability n For example: European financial crisis, Japanese earthquake n Creating regional- or product-based supply chains v Allowing production to be moved to temporary safe harbors in case of local manufacturing disruptions v Focus on “optimal-cost”, distributed manufacturing, and flexible supply chains that can shift to low-risk areas Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -26

Accountable Supply Chains n Labor conditions in low-wage, under-developed producer countries are acceptable to consumers v v v n Slave/forced and child labor Routine exposure to toxic substances More than 48 hrs/week Harassment, abuse, and sexual exploitation Adequate compensation Efforts to make global supply chains more accountable and transparent to reporters and citizens Fair Labor Organization v National Consumers League, Human Rights First, and more v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -27

Sustainable Supply Chains n Taking social and ecological interests into account v For example: water usage, air pollution n Using most efficient environment for production, distribution, logistics v Good business, over long-term n Good risk management v Create value for consumers, investors, communities Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -28

Electronic Data Interchange (EDI) n Broadly defined communications protocol for exchanging documents among computers v Stage 1: 1970 s– 1980 s—Document automation v Stage 2: Early 1990 s—Document elimination v Stage 3: Mid-1990 s—Continuous replenishment/access model n Today: v EDI provides for exchange of critical business information between computer applications supporting wide variety of business processes Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -29

The Evolution of EDI as a B 2 B Medium Figure 12. 5, Page

Supply Chain Management Systems n Continuously link activities of buying, making, and moving products from suppliers to buyers v SAP and Oracle Mobile apps for smartphones, tablets Integrates demand side of business equation by including order entry system in the process n With SCM system and continuous replenishment, inventory is eliminated and production begins only when order is received n Hewlett Packard’s SCM system: Elapsed time from order entry to shipping PC is 48 hours n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -31

Supply Chain Management Systems Figure 12. 6, Page 768 Copyright © 2014 Pearson Education,

Insight on Technology: Class Discussion RFID Autoidentification: Giving a Voice to Your Inventory n Why is RFID an improvement over bar codes? n How does RFID work? n How is Walmart utilizing RFID? n What impact will widespread adoption of RFID have on B 2 B e-commerce? Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -33

Collaborative Commerce Use of digital technologies for organizations to collaboratively design, produce, and manage products through life cycles n Moves focus from transactions to relationships among supply chain participants n Unlike EDI, more like an interactive teleconference among members of supply chain n Use of Internet technologies for rich communications environment n n Sharing designs, documents, messages, network meetings, videconferencing Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -34

Elements of a Collaborative Commerce System Figure 12. 7, Page 772 Copyright © 2014

Social Networks and B 2 B Social networks can provide personal connections that can help decision making in supply chain n Conversations and sharing of ideas by SCM workers are more unstructured and personal and involve the use of social media n Example: Trade. Space, UK based, allows business people to share ideas and experiences v Example: Dell’s You. Tube channel v Example: Cisco’s Facebook pages for product campaigns for business clients v Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -36

2 Main Types of Internet-Based B 2 B Commerce 1. Net marketplaces: v v v 2. 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 Private industrial networks: v v 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 B 2 B e-commerce, account for > 10 times revenue of net marketplaces Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -37

Two Main Types of Internet-Based B 2 B Commerce Figure 12. 8, Page 774

Net Marketplaces n Ways to classify Net marketplaces: v Pricing mechanism bid/ask, auction, negotiated price, fixed prices v nature of market served, horizontal vs vertical v Ownership, industry owned, independent 3 rd-party n By business functionality v What businesses buy (direct vs. indirect goods) v How businesses buy (spot purchasing vs. long-term sourcing) Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -39

Net Marketplaces n By business functionality v Four main types E-distributor market place provides e-catalog that represents the products of thousands of direct manufacturers n E-procurement market place is an independently owned and connects hundreds of online suppliers offering millions of MRO’s to business that pay a fee to join the market n Exchanges market place is an independently owned online marketplace that connects hundreds/thousands of suppliers and buyers in a dynamic real-time environment; they are generally created for vertical markets that focus on spot purchasing of large firms in a single industry; they make money by charging a commission on each transaction n Industry consortia is industry-owned vertical market that enables buyers to purchase goods/services from a set of invited participants n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -40

Table 12. 2, p. 775 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice

Pure Types of Net Marketplaces Figure 12. 9, Page 776 Copyright © 2014 Pearson

E-distributors n n n n 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 Usually, fixed price—discounts for large customers Example: W. W. Grainger Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -43

E-distributors Figure 12. 10, Page 777 Copyright © 2014 Pearson Education, Inc. Publishing as

E-procurement Net Marketplaces n n n n Independently owned intermediaries Connect hundreds of suppliers of indirect goods Firms pay fees to join market Long-term contractual purchasing of indirect goods Revenues from transaction fees, licensing consultation services and software, network fees Offer value chain management (VCM) services Many-to-many market Example: Ariba Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -45

E-procurement Net Marketplaces Figure 12. 11, Page 779 Copyright © 2014 Pearson Education, Inc.

Exchanges n n n n Independently owned online marketplaces Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environment Vertical markets, spot purchasing in single industry Charge commission fees on transaction Variety of pricing models Tend to be buyer-biased Suppliers disadvantaged by competition Many have failed due to low liquidity Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -47

Exchanges Figure 12. 12, Page 780 Copyright © 2014 Pearson Education, Inc. Publishing as

Industry Consortia Industry-owned vertical markets n Purchase of direct inputs from set of invited participants n Emphasize long-term contractual purchasing, stable relationships, creation of data standards n Ultimate objective: n v n Revenue from transaction and subscription fees v n Unification of supply chains within entire industries through common network and computing platform Many different pricing mechanisms Can force suppliers to use consortia’s networks Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -49

Industry Consortia Figure 12. 13, Page 782 Copyright © 2014 Pearson Education, Inc. Publishing

The Long-Term Dynamics of Net Marketplaces Pure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement process n Consortia and exchanges beginning to work together in selected markets n E-distributors joining large e-procurement systems and industry consortia as suppliers n Movement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goods n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -51

Net Marketplace Trends Figure 12. 14, Page 785 Copyright © 2014 Pearson Education, Inc.

Private Industrial Networks Originate in and involve manufacturing and related support industries n Web-enabled networks for coordination of transorganizational business processes (collaborative commerce) n v Direct descendant of EDI; closely tied to ERP systems v Manufacturing and support industries v Single, large manufacturing firm sponsors network Range in scope from single firm to entire industry n Example: Procter & Gamble n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -53

P&G’s Private Industrial Network Figure 12. 15, Page 787 Copyright © 2014 Pearson Education,

Characteristics of Private Industrial Networks n Objectives include: v v v Efficient purchasing and selling industry-wide Industry-wide resource planning to supplement enterprise-wide resource planning Increasing supply chain visibility Enabling closer buyer–supplier relationships Global scale operations Reducing industry risk by preventing imbalances of supply and demand Focus on continuous business process coordination n Typically, focus on single sponsoring company that “owns” the network n Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -55

Insight on Business: Class Discussion Walmart Develops a Private Industrial Network n What is Walmart’s Retail Link system and how has it changed since the early 1990 s? n Why is Walmart still using EDI-based systems? n Why won’t Walmart join in an industrybacked system? n How can other companies compete with Walmart? Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -56

Private Industrial Networks and Collaborative Commerce n Forms of collaboration: v Collaborative resource planning, forecasting, and replenishment (CPFR): n Working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities to ensure that retail and wholesale shelf space is replenished with just the right amount of goods v Demand chain visibility enables manufacturers to know what is happening on the demand side of retailers v Marketing coordination and product design enable suppliers and retailers to collaborate on design and marketing to ensure products fulfill marketing claims Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -57

Pieces of the Collaborative Commerce Puzzle Figure 12. 16, Page 791 Copyright © 2014

Implementation Barriers n Concerns about sharing of proprietary, sensitive data n Integration of private industrial networks into existing ERP systems and EDI networks difficult, expensive n Requires change in mindset and behavior of employees and suppliers v All participants lose some independence Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall Slide 12 -59