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

CSC 330 E-CommerceTeacher Ahmed Mumtaz Mustehsan GM-IT CIIT Islamabad Virtual Campus, CIIT COMSATS Institute of Information TechnologyT1-Lecture-16T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-1T1-Lecture-16B2B E-commerce: Supply Chain Management and Collaborative CommerceChapter-12For Lecture Material/Slides Thanks to: Copyright © 2010 Pearson Education, IncT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-2B2B E-Commerce & supply Chain ManagementB2B Trade in 2010 is US only was $ 16 Trillions and with B2B e-commerce was $ 3.6 Trillions.Some Basic Terminologies:Total Inter-firm TradeThe total flow of value among firms.B2B CommerceAll types of computers enabled inter firm trade.Internet-based B2B CommerceThe portion of B2B commerce that is enabled by the internet.Automated Order Entry systemsInvolved the use of telephone modems to send digital orders.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-3B2B E-Commerce & supply Chain ManagementSome Basic Terminologies: (Continued)Selle- side SolutionsSeller 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.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-4B2B E-Commerce & supply Chain ManagementSome Basic Terminologies: (Continued)Vertical marketOne that provides expertise and products for specific industry.Horizontal marketMarket that serve many different industries.B2B Electronics StorefrontsOnline catalogue of products made available to the public marketplace by a single supplier.Net MarketplaceBrings hundreds to thousands of suppliers and buyers into a single internet-based environment to conduct trade.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-5B2B E-Commerce & supply Chain ManagementSome Basic Terminologies: (Continued)Private Industrial Networks/ Private Trading Exchange (PTX)Internet based Communications environments that extend far beyond procurement to encompass truly collaborative commerce. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-6The Growth of B2B- Industry ForecastsIn 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-commerceNot all industries would benefit equallyFactors influencing move to e-commerceSignificant utilization of EDILarge investments in IT and Internet infrastructuree.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)T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-7Potential Benefits of B2B E-commerceLower administrative costsLower search costs for buyersReduced inventory costsIncreasing competition among suppliers (increasing price transparency)Reducing inventory carriedLower transaction costs:Eliminating paperworkAutomating parts of procurement processT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-8Increased production flexibility by ensuring just-in-time parts deliveryImproved quality of products by increasing cooperation among buyers and sellersDecreased product cycle time by sharing of designs and production schedulesIncreased opportunities for collaborating with suppliers and distributorsGreater price transparencyPotential Benefits of B2B E-commerceT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-9The Procurement Process and the Supply ChainProcurement process: The way firms purchase materials they need, to make productsSupply chain: Firms that purchase goods, their suppliers, and their suppliers’ suppliers, and relationships and processes involvedSteps in procurement process:Deciding who to buy from and what to payCompleting transactionT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-10The Procurement ProcessT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-11Types of ProcurementFirms purchase two types of goodsDirect goods: integrally involved in production processIndirect goods: all goods not directly involved in production process (MRO goods)Firms use two methods to purchaseContract purchasing: Involves long-term written agreements to purchase specified products, with agreed-upon terms and qualitySpot purchasing: Involves purchase of goods based on immediate needs in larger marketplaces that involve many suppliersT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-12Types of ProcurementProcurement is highly information intensive and labor intensive—3.3 million U.S. workersUse of Internet can simplify process and reduce Search, Research, Negotiating costsMulti-tier supply chainComplex series of transactions between firm and thousands of suppliers T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-13The Multi-Tier Supply ChainT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-14The Role of Existing Legacy Computer SystemsLegacy computer systemsGenerally older mainframe and minicomputer systems used to manage key business processes within firmMRP 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.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-15Trends in Supply Chain Management and Collaborative CommerceSupply chain management (SCM): Wide variety of activities that firms and industries use to coordinate key players in their procurement processMajor developments in SCMSupply chain simplificationElectronic Data InterchangeSupply Chain Management systemsCollaborative CommerceT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-161. Supply Chain SimplificationSimplified Procurement ProcessEssential for Just-In-Time production modelsTypically achieved by:Working with strategic group of suppliers to reduce product and administrative costs, while improving qualityPurchasing under long-term contracts; ensured certain business to the selected supplier against; specified quality, cost, and timing goals.May involve Joint product development and designIntegration of computer systemsTight 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 not delayed due to lack of parts. T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-172. Electronic Data Interchange (EDI)Broadly defined communications protocol for exchanging documents among computersStage 1: 1970s–1980s Document automation (B2B e-commerce existed much before Internet)Stage 2: Early 1990sDocument eliminationStage 3: Mid-1990sMove toward continuous replenishment/access modelToday: EDI provides for exchange of critical business information between computer applications supporting wide variety of business processesFirms using XML to define EDI.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-18The Evolution of EDI as a B2B MediumStandardization of Documentation such as P.O, invoice, shipping documents, payments exchanges electronically.Documents were replaced with Production Process, Schedule and Inventory Suppliers were given online access to the production system and inventory; Eliminated manual procurement T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-192. Electronic Data Interchange (EDI)Strength and Weakness of EDIThe 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.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-203. Supply Chain Management SystemsFocused upon ERP system and Continuous Replenishment:SCM, Continuously link activities of buying, making, and moving products from suppliers to purchasing firmsAlso Integrates demand side of business equation by including order entry system in the processWith 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.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-21Supply Chain Management SystemsT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-22Collaborative CommerceUse of digital technologies enabling organizations to collaboratively design, develop, build, and manage products through life cyclesDirect extension of SCM systems and supply chain simplificationInvolves move from transaction focus to relationship focus among supply chain participantsUnlike EDI, more like an interactive teleconference among members of supply chain.Involves customers and suppliers in the development of products for the most parts with the development of rich communication environment.Example: Group DekkoT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-23Elements of a Collaborative Commerce SystemT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-24Two Types of Internet-Based B2B Commerce1. Net marketplaces: Bring together potentially thousands of sellers and buyers in single digital marketplace operated over InternetTransaction-basedSupport many-to-many as well as one-to-many relationships2. Private industrial networks: Bring together small number of strategic business partner firms that collaborate to develop highly efficient supply chainsRelationship-basedSupport many-to-one and many-to-few relationshipsLargest form of B2B e-commerce.Generate 10 times the reveneue as that of Net marketplace.T1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-25Two Main Types of Internet-Based B2B CommerceT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-26Net MarketplacesVarious ways to classify Net marketplaces:Pricing mechanism, nature of market served, ownershipBy business functionalityWhat businesses buy? (Direct vs. Indirect goods)How business buy? (Spot purchasing vs. long-term sourcing)Four main typesE-distributorsE-procurement networksExchangesIndustry consortiaT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-27Pure Types of Net MarketplacesT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-28Other Chacteristics of Net MarketplacesT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, IncSlide 11-29E-distributorsMost common type of Net marketplaceElectronic catalogs representing products of thousands of direct manufacturersTypically independently owned intermediariesOffer industrial customers single source to purchase indirect goods on spot basisTypically horizontal; serve many different industries with products from many different suppliersUsually fixed price; discounts for large customersExample: W.W. GraingerT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-30E-distributorsT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-31E-procurement Net MarketplacesIndependently owned intermediariesConnect hundreds of suppliers of indirect goodsFirms pay fees to join marketTypically for long-term contractual purchasing of indirect goods Revenues from transaction fees, licensing consultation services and software, network feesOffer value chain management (VCM) servicesVCM: Automation of entire procurement process on buyer side, automation of selling business processes on seller sideMany-to-many marketExample: AribaT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-32E-procurement Net MarketplacesT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-33ExchangesIndependently owned online marketplaces Connect hundreds to thousands of suppliers and buyers in dynamic, real-time environmentTypically vertical markets; spot purchasing requirements of large firms in single industryCharge commission fees on transactionVariety of pricing models usedOnline negotiation, auction, RFQs/RFPs, fixedTend to be buyer-biasedSuppliers disadvantaged by competitionMany have failed due to low liquidityT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-34ExchangesT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-35Industry ConsortiaIndustry-owned vertical markets Enable buyers to purchase direct inputs from limited set of invited participantsEmphasize long-term contractual purchasing, stable relationships, creation of data standardsUltimate objective: Unification of supply chains within entire industries through common network and computing platformMake money from transaction and subscription feesOffer many different pricing mechanismsAuctions, fixed prices, RFQs, negotiatedCan force suppliers to use consortia’s networksT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-36Industry ConsortiaT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-37The Long-Term Dynamics of Net MarketplacesPure Net marketplaces moving from “electronic marketplace” vision toward more central role in changing procurement processConsortia and exchanges beginning to work together in selected marketsE-distributors joining large e-procurement systems and industry consortia as suppliersMovement from simple transactions for spot purchasing to longer-term contractual relationships involving both direct and indirect goodsT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-38Net Marketplace TrendsT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-39End of: T1-Lecture-16Chapter-12B2B E-commerce: Supply Chain Management and Collaborative CommerceThank YouT1-Lecture-16 Ahmed Mumtaz Mustehsan Copyright © 2010 Pearson Education, Inc1-40