1. Chapter 6
Business-to-Business
Electronic Commerce
© Prentice Hall, 2000 1

2. Learning Objectives
Distinguish between B2B and B2C
Identify the relationship between B2B and
supply chain management
Classify the categories of B2B models and
architectures according to the nature of the
electronic stores and malls
Describe typical cases of Supplier, Buyers,
and Intermediary-Oriented Market Places
Outline the current and next-generation
characteristics of B2B Electronic Commerce
© Prentice Hall, 2000 2

3. Learning Objectives (cont.)
Distinguish between VAN-based an Internet-
base EDI
Describe the role of Just-In-Time in B2B
Electronic Commerce
Describe how software agents can facilitate
communication between sellers and buyers
Describe how marketing is done in B2B
© Prentice Hall, 2000 3

4. Trading Process Network (TPN)
Post in General Electric
General Electric (GE)
Its purchasing was inefficient, involved too many
administrative transactions
For each requisition, the
Factories at GE This process took at
accompanying blueprints
Lighting division least 7 days and was
had to be requested from
used to send so complex and time-
storage, retrieved from
hundreds of consuming that the
the vault, transported to
Requisitions For sourcing department
the processing site,
Quotations (RFQs) normally sent out bid
photocopied, folded,
to the corporate packages only to two
attached to paper
sourcing department or three suppliers at
requisition forms with
each day for low- a time.
quote sheets, stuffed into
value machine parts.
envelopes and mailed
out.
GE is conducting electronic bids, no paperwork
© Prentice Hall, 2000 4

5. Trading Process Network (TPN)
Post in General Electric (cont.)
Benefits of using TPN
60%of the staff involved in It used to take 18-23 days to identify
procurement have been suppliers, prepare a request for bid,
redeployed. The sourcing negotiate a price and award the
department has at least 6-8 free contract to a supplier. It now takes
days a month to concentrate on 9-11 days.
strategic activities rather than With the transaction handled
on paperwork, photocopying electronically from beginning to
and envelope stuffing it had to end, invoices are automatically
do when the process was reconciled with purchase orders,
manual. reflecting any modifications that
Labor involved in procurement happen along the way.
declined by 30%. At the same GE Procurement departments
time, materials costs declined across the world now share
5%-20% due to the ability to information about their best
reach a wider base of suppliers suppliers.
online. © Prentice Hall, 2000 5

6. Supply Chain
Definition
All activities associated with the flow and transformation
of goods from raw materials to end users
Upstream Internal Downstream
2nd Tier Distribution
Customers
Supplier 1st Tier Centers
2nd Tier Supplier Assembly/
Supplier Manufacturing and
1st Tier
Packaging
2nd Tier Supplier
Packaged Retailers
Supplier Cereal
Grain Grain Processing Cereal
Packaging Distributor Customers
Producer Facility
Paperboard
Corrugate
Manufacturer Labels Store
Word
Lumber Label
Company Manufacturer
© Prentice Hall, 2000 6

7. Characteristics of B2B EC
Key Entities of B2B EC
Buying company with procurement management perspective
Selling company with marketing management perspective
Electronic Intermediary, an optional third party directory service
provider (the scope of service may be extended to order fulfillment)
Deliverer who can fulfill a just-in-time delivery
Network platform such as the Internet, VAN, intranet and extranet
Protocol of communication such as EDI and comparison
shopping possibly using software agents
Back-end information system possibly implemented using the
intranet and Enterprise Resource Planning (ERP) systems
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8. Characteristics of B2B EC (cont.)
Relationship with Electronic Marketing
Supplier-oriented marketing
Used to sell the company’s products and
services to business customers on the Internet
Electronic catalogs are basically the same as that
for B2C EC, but they may be customized
Using electronic auctions to liquidate surpluses
Relationship with Procurement Management
Purchasing company’s point of view : a medium of
achieving the goals of procurement management
Procurement management’s point of view : the
buyer-oriented market can be effective
Using a RFQ-bidding mechanism
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9. Characteristics of B2B EC (cont.)
Relationship with Electronic Intermediaries
Similar to the B2B electronic intermediaries, but
the customers are businesses
Also, special intermediaries for matching buyers
and sellers, bartering etc.
Relationship with intranet are very important
Relationship with extranets
A dedicated network between business partners
or a secured public network like the Internet
Implementing a virtually private network (VPN) to
improve internet security
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10. Models of B2B EC
Supplier-Oriented Market Place
Individual consumers and business buyers use
the same supplier-provided market place (May
pay different prices due to quantity discount)
Consumers Business
Customers
Supplier’s
Electronic Mall
Supplier’s Customer’s
Products Catalog Order Information
B2C E-commerce B2B E-Commerce
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11. Models of B2B EC (cont.)
Buyer-Oriented Market Place
Buyer opens a market on its own server and invites
potential suppliers to bid on RFQs
Offer opportunity to committed suppliers
BUT as the number of such sites increase, only very
big buyers can afford to fully utilize this approach
OVERCOME with the aid of software agents
Business
Suppliers
Buyer’s
Electronic Mall
Buyer’s
Suppliers’
Products
Bids, Information
Catalog, RFQ
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12. Models of B2B EC (cont.)
Intermediary-Oriented Market Place
Establish an electronic intermediary company
Similar to an intermediary-based B2C mall; bring buyers
and suppliers (bidders) to one place
The corporate information systems need tight coupling
with the intermediary electronic mall
Business Business
Customers Suppliers
Intermediary’s
Electronic Mall
Customer’s Shared Supplier’s
Order Information Products Catalogs Product Information
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13. Procurement Management Using
B2B EC Platform
Purchasing is now a strategic function, to increase profit
margins
By automating and streamlining the laborious routine of the
purchasing function, purchasing professionals can focus on
more strategic purchases, achieving the following goals:
Reducing purchasing cycle time and cost
Enhancing budgetary control
Eliminating administrative errors
Increasing buyers’ productivity
Lowering prices through product standardization and
consolidation of purchases
Better information management;
e.g. supplier’s information and pricing information
Improving the payment process
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14. Case Study of Supplier-Oriented Market Place:
CISCO Connection Online
Customer Service— Cisco Connection online
Online Ordering— Internet Product Center builds
virtually all its products to order
Finding Order Status— gives the customers
tools to find answers to order status inquiries by
themselves
Benefits— save the company $363 million per
year from technical support, human resources,
software distribution and marketing material
The Future— expect online sales to grow more
than 60% of total volume in 1999
© Prentice Hall, 2000 14

15. Case Study of Customer-Oriented Market Place:
GE’s TPN Post
Provides a chance for sellers to participate in the
bidding process of GE using the following procedure:
Buyers prepare bidding project information
Buyers post the bidding projects on the Internet
Buyers identify potential suppliers
Buyers invite suppliers to bid on projects
Suppliers download the project information from the
Internet
Suppliers electronically submit bids for projects
Buyers evaluate the suppliers’ bids and negotiate online
to achieve the ‘best deal’
Buyers accept the bid that best meets their requirements
© Prentice Hall, 2000 15

16. Case Study of Customer-Oriented Market Place:
GE’s TPN Post (cont.)
The benefits of joining GE TPN Post
As buyers As Sellers
Identify and build partnerships with new Boost Sales
suppliers worldwide Expand market reach
Strengthen relationships and streamline Cut costs for sales and
sourcing processes with current marketing activities
business partners
Shorten the selling cycle
Rapidly distribute information and
specifications to business partners Improve sales
productivity
Transmit electronic drawings to multiple
suppliers simultaneously Streamline the bidding
Cut sourcing cycle times and reduce
process
costs for sourced goods
Quickly receive and compare bids from
large number of suppliers to negotiate
better prices
© Prentice Hall, 2000 16

17. Case Study of Intermediary-Oriented Market Place:
Boeing’s PART
Boeing’s PART Case
Acts as an intermediary between the
airlines and parts’ suppliers
Provides a single point of online access
through which airlines and parts providers
can access the data needed
Goal: provide its customers with one-stop
shopping with online parts and
maintenance information and ordering
capability
© Prentice Hall, 2000 17

18. Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)
Boeing On Line Data (BOLD)
Incorporating not only engineering
drawings but manuals, catalogs and other
technical information that used to be
available only in paper or in microfiche
format
Portable Maintenance Aid (PMA)
Solves maintenance problems
© Prentice Hall, 2000 18

19. Case Study of Intermediary-Oriented Market Place:
Boeing’s PART (cont.)
Benefits to Boeing’s Customers
Increased productivity
spending less time searching for information; frees up
engineers and maintenance technicians to focus on
more productive activities
Reduced costs
with information available online at the airports’ gates,
through PMA, rather than back in the office, delays at
the gate due to missing information are reduced
Increased revenue opportunity
through BOLD and PMA, a European airline estimates it
will save 1-2 days/year of down time for each aircraft
Should Boeing keep the inventory of parts in
stock, or relay on the manufacturers?
© Prentice Hall, 2000 19

20. Just-In-Time Delivery:
Fed Express InterNetShip
FedEx
Internet and private networks improve
efficiency and customer satisfaction
FedEx PowerShip and FedEx Ship were
the two software rolled out in the mid-
1980s and 1995 respectively
Now moving to the Internet : InterNetShip
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21. Just-In-Time Delivery:
Fed Express InterNetShip (cont.)
FedEx InterNetShip
Extends online capabilities to the Internet
Customers can request a parcel pickup or find
the nearest drop-off point, print packing labels,
compute fees, request invoice adjustments and
track the status of their deliveries without leaving
the Web site
FedEx COSMOS (own proprietary network)
handles 54 million transactions a day (1998)
Hundreds of thousands of tracking requests per
month come from links from over 5,000 Web
sites to fedex.com
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22. Just-In-Time Delivery:
Fed Express InterNetShip (cont.)
Benefits to FedEx
Avoided Costs
If not for FedEx PowerShip, FedEx would have had to
hire an additional 20,000 employees to answer phone
calls at the call centers and key in air bills
Lower Operating Costs
Without the system, approximately half of the calls
would have gone to FedEx’s toll-free number resulting
in high telephone and labor expenses
Better Customer Service
Customers still have a choice for how they interact
with the company, whether by e-mail, phone, fax or
other means © Prentice Hall, 2000 22

23. Business-to-Business Auctions
Benefits
New sales channel
New venue for disposing excess, obsolete products
Increase page views; viewers like to watch auctions
Acquire and retain members
Types
Independent auctions: using 3rd party auction site
Community auctions: many sellers and buyers
simultaneously (Electricity, Flowers)
Private auctions: large distributor (Ingrain Micro)
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24. Business-to-Business Auctions (cont.)
What Auction Intermediary Provides?
All necessary infrastructure
Company controls all auction information
(software provided)
All procedures for auctions
Fast deployment time
Search engine
Trust mechanism (escrow, insurance)
Activity report generation
Billing and collection
© Prentice Hall, 2000 24

25. EDI - The Infrastructure for B2B
A network for transmitting standard transactions
A paperless TPS environment
Routine documents; purchase order, billings,
shipping manifests
Documents translated into standard business
language
In use since the 1970s on private VANs. Save
time, reduce errors in data entry, save money,
consistent information flow
Provide strategic advantages
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26. EDI - The Infrastructure for B2B (cont.)
Typical Flow of EDI Messages
one order - seven messages!!
Buyer Supplier
RFQ
Response to RFQ
Purchase Order
P.O. Acknowledgement
Purchase Order Change
P.O. Change Acknowledgement
Functional Acknowledgement
(for each Transaction )
RFQ = Request for Proposal P.O. = Purchasing Order
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27. From Traditional to Internet-based EDI
Factors limiting businesses to benefit from
the traditional EDI
Significant initial investment is needed
Restructuring business processes is necessary
to fit the EDI requirements and standards
Long start-up time is needed
Use of Private VANs is necessary
High EDI operating cost is needed
There are several EDI standards
The EDI system is complex to use
© Prentice Hall, 2000 27

28. From Traditional to Internet-based
EDI (cont.)
Traditional EDI does not meet following
requirements:
Enable more firms to use EDI
Encourage full integration of EDI into trading
partner business processes
Simplify EDI implementation
Expand the capabilities of online information
exchange
© Prentice Hall, 2000 28

29. From Traditional to Internet-based
EDI (cont.)
Reasons for firms to create the ability to
change transactions over the Internet
The Internet is a publicly accessible network with
few geographical constraints. Its largest attribute,
large-scale connectivity (without the need to have
special company networking architecture) is a
seedbed for growth of a vast range of business
applications.
The Internet global inter-network connections
offers the potential to reach the widest possible
number of trading partners of any viable alternative
currently available.
© Prentice Hall, 2000 29

30. From Traditional to Internet-based
EDI (cont.)
Reasons
Using the Internet can cut communication cost by
over 50%.
Using the Internet to exchange EDI transactions
is consistent with the growing interest of business
in delivering an ever-increasing variety of
products and services electronically, particularly
through the Web.
Internet-based EDI can compliment or replace
current EDI systems.
Internet tools such as browsers and search
engines are very user friendly and most users
today know how to use them.
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31. The Role of Agents in B2B EC
Requirement of Human Buyer Requirement of Human Buyer
Buyer Agent B1 Buyer Agent B2
Seller Agent S1 Seller Agent S2 Seller Agent S3 Seller Agent S3
Human Human Human Human
Seller 1 Seller 2 Seller 3 Seller 4
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32. The Role of Agents in B2B EC (cont.)
AGENT
Problem Solver Communication Controller
Outgoing Msg.
Problem Solving Incoming Msg.
Message
Manager Message Manager
Base
Directory Consulting
Solution Engines Directory
Individual Manager
Order
Message Queue Mgt. Agent
Data Knowledge
Base Base Message Gate
An Architecture of Intelligent Agents for
Electronic Commerce: UNIK-AGENT Approach
© Prentice Hall, 2000 32

33. The Role of Agents in B2B EC (cont.)
Management of Buyer Information at Buyer Sites to
Integrate with Corporate Information Systems
Current B-to-C Platform Prospective B-to-B Platform
Buyer’s information stored in Buyer’s information needs to
the seller’s server be stored in the buyer’s
server to integrate with back-
end systems such as Intranet,
Workflow & ERP
Limited bookkeeping-supported Complete bookkeeping necessary
Web technology using a thin Web technology with thick
client is adopted. client is needed. Java and
External helper Program at
client PC are necessary.
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34. The Role of Agents in B2B EC (cont.)
Comparison Shopping with Buyer’s Own Electronic Bag
Current B-to-C Platform Prospective B-to-B Platform
Customers need to visit many malls Meta-Mall architecture is need for
the customers to reduce the effort of
visiting many sites
Every mall requires a proprietary Standard shopping bag and digital
shopping bag and digital wallet wallet that can work independently
of malls are necessary
Software agents merely help the Comparison-shopping needs to be
search process treated as multiple criteria
decision support
Customer membership registration is Shared customer membership is
requested for each mall necessary to allow the comparison of
multiple malls with a single registration
© Prentice Hall, 2000 34

35. The Role of Agents in B2B EC (cont.)
Just-in-Time Delivery
Current B-to-C Platform Prospective B-to-B Platform
Inventory availability is not Dynamic inventory availability
displayed should be displayed to customers
Precise delivery date is less Precise delivery date should be
critical dynamically confirmed at
ordering time
Ordering system is fragmented Integration of orders with
from inventory system inventory, production scheduling,
and delivery scheduling systems
essential
© Prentice Hall, 2000 35

36. The Role of Agents in B2B EC (cont.)
Buyer Oriented Directory
Current B-to-C Platform Prospective B-to-B Platform
Seller Oriented Directory To big buyers, Buyer
popular Oriented Directory should be
offered
Major motivation of EC is sales Additional motivation is the re-
promotion engineering acquisition process
Either buyer or seller oriented Intermediary directory is
directory is developed necessary to coordinate
between seller and buyer
oriented directories
© Prentice Hall, 2000 36

37. The Role of Agents in B2B EC (cont.)
Formal Contract with Bidding Process
Current B-to-C Platform Prospective B-to-B Platform
Ordering without formal Formal contract with electronic
contract is enough for order documents that include specific
terms and conditions is necessary
fulfillment
Free contract protocol Legitimate contract protocol
needs to be conformed
Electronic version of More creative contract protocol
traditional bidding and can be innovated
auction are implemented
© Prentice Hall, 2000 37

38. The Role of Agents in B2B EC (cont.)
Organizational Purchasing Decision
Current B-to-C Platform Prospective B-to-B Platform
Purchasing is an individual Purchasing is an organizational
buyer’s decision buyer’s decision
Buying decision process does Buying decision is made as a
not need coordination combination of synchronous
group decision (using web
conference and Internet phone)
and asynchronous group
decision (using workflow tools)
© Prentice Hall, 2000 38

39. The Role of Agents in B2B EC (cont.)
Agent Based Commerce
Current B-to-C Platform Prospective B-to-B Platform
Human interactively involved in the Buyer’s and seller’s software agents
buying decision assist communication to minimize
human’s involvement
Software agent in one site cannot Mutually agreed contract type
understand the norm of the conformation is necessary to
counterpart agents effectuate the communication
between agents
Buyers have to search around the Seller agents assist the
seller’s products catalog configuring configuration process based on the
manually buyer’s requirement specification
Seller’s data mining is popular Buyer’s data mining is additionally
necessary
© Prentice Hall, 2000 39

40. The Role of Agents in B2B EC (cont.)
Secure Large Amount Payment
Current B-to-C Platform Prospective B-to-B Platform
Credit card is popular, and Electronic check and electronic
relatively high fee is charged fund transfer will become
to sellers popular, whose fees are
traditionally paid by payer
Security, certification and non-
repudiation will become more
critical. So registered delivery,
which keeps the important
transaction record at the third
party will become popular
© Prentice Hall, 2000 40

41. Issues in B2B Advertisement and Marketing
Finding and retaining business customers
Making them buy
Reaching organizational buyers (functional,
corporate)
Building relationship marketing in B2B
Advertisement, mailing lists, strategies
Mailing lists: house, response, compiled
The role of the CD-ROM
Marketing databases and e-mail lists
© Prentice Hall, 2000 41

42. Internet Marketing Strategies
Generating and qualifying leads with the
Internet
Using Internet events to promote products
and services
Executing instant fulfillment on the Internet
Generating orders through the Internet
Enhancing customer relationships with the
Internet
© Prentice Hall, 2000 42

43. Managerial Issues
If sales promotion is a major concern, adopt the
Supplier-Oriented Marketing approach possibly
joining popular Intermediary-Oriented Market
Places as well
If purchase process re-engineering is a major
concern, consider establishing Customer-Oriented
Market Place (if sales volume is big enough) to
attract the attention of major vendors
Otherwise, join a third party Intermediary-Oriented
Market Place to implement the plan from either or
both aspects, because every company needs
effective and efficient sales and purchases
© Prentice Hall, 2000 43