Banking in The Supply Chain - Weiss

Arbeitskreis
"Strategieentwicklung und Controlling in Banken"

Schmalenbach-Gesellschaft
Munich, 4 May 2001
Banking in der e-Supply Chain

von Hans Weiß/Jürgen E. Schwarz
WORLDWIDE B2B e-COMMERCE EXPECTED TO SEE EXPLOSIVE
GROWTH
B2B e-commerce market sizes and penetration, 2000 B2B e-commerce market sizes and penetration, 2005
Trillions Trillions 13.8

(U.S.$) 14 (U.S.$) 14
Total B2B ($T) Total B2B ($T)
12 B2B e-Com ($T) 12 B2B e-Com ($T)
10.9
10.8
10 10
8.2
8 8
7.0
6 6
5.1
4 4
6.7
2.1
2 1.6 2
2.7 2.6
1.2 0,2
0 0.7 0.1 0.0 0
North America Europe Asia Pacific Latin America North America Europe Asia Pacific Latin America
B2B e-com
B2B e-com 48% 25% 36% 9%
11% 8% 3% 1% penetration:
penetration:
CAGR: 40% 33% 82% 85%
Note: All e-commerce data includes EDI/VAN

Sources: BCG U.S. B2B Landscape study, Oct. 2000; BCG B2B Study for Germany, Aug. 2000 Forrester, “Global e-Commerce Approaches Hypergrowth”, April 2000;
BCG analysis and estimates; Schroder Salomon Smith Barney; B2B@europe.com, Oct. 2000, eMarketer - The eAsia Report
Internet-Schmalenbachges-4-5-01-HW-dw-Muc.ppt © -2-
SEVERAL B2B e-COMMERCE MODELS PREVAIL IN THE e-SUPPLY CHAIN
Model Architecture Horizontal example Vertical example
DaimlerChrysler
(purchase of C parts with
E-procurement Internet EDI
software solutions from
Healy Hudson)
Covisint(1)
Global Trading Web(1)
Buyer-centric (purchasing platform Ford,
(worldwide network for
marketplace DaimlerChrysler, GM, and
buyers)
others)
E-marketplaces
allago FreeMarkets
Neutral
marketplace (marketplace for indirect (auctions in various
goods, Dresdner Bank) industries)
Omnexus(1)
Seller-centric Grainger Export
(sales platform BASF, Bayer,
marketplace (sale of MRO articles)
DOW and others)
Dell Gehe
E-sales (computer sales to (wholesale pharmaceutical
companies) sales)
(1) Announced and/or only partially realized

Source: BCG analysis
TRADITIONAL PROCUREMENT IS FILLED WITH COMPROMISES
Buyer
Search Select Order Obtain Pay Integrate
Compromises
• Time con- • Long RFQ, • Complex, • Difficult to • Manual • Few

suming and negotiation error-filled track reconciliation automatic
costly to find and approval order deliveries purchase
suppliers processes processes • Manual triggers for
• Manual payments inventory
• Maverick • Difficult to reconcil- (e.g., checks) gaps
buying reconcile iations
with
• No consistent deliveries • Manual
benchmarking and recording to
of products invoicing inventory
Supplier
Inform Bid Execute Deliver Get Paid Integrate
Compromises
• Costly to • Time con- • Error-filled • Inefficient, • No link to • No link to

produce suming and manual order links to accounting inventory/
catalogs, expensive to entry logistics systems production system
advertise, produce processes providers to check
visit quotes availability
customers • Limited
• Hard to tracking
• No real-time customize
updates for offers for
new offers customer
needs
e-PROCUREMENT CAN BRING VALUE IN MANY WAYS
Source of value How realized Observed results(1)
Lower procurement process costs • Approval automation • Average P.O. processing costs
• Reduced or reassigned headcount reduced by 70% per order
- from $107 per P.O. to $30
Lower product/service costs • Improved leverage • 5%-20% reduction in prices

• Reduced “maverick” purchasing • 300% ROI from reduction in
• Increased contract compliance maverick purchasing alone
• Price comparison shopping
Improved inventory turns • Shorter fulfillment cycle • Significant reductions in inventory

allows aggressive JIT levels and costs
• Improved purchase control
• Improved data & reporting
Shorter cycle time • Workflow automation reduces • Average P.O. processing time
processing time and complexity reduced by 50-70%
• Reduced transaction errors • Average order-fulfillment cycle
reduced from 7.3 to 2 days
Increased visibility into spending habits and levels as well as pricing can help identify additional ways
to decrease costs
(1) Aberdeen Group; Internet Procurement Automation Looks Like a Winner, 1999
Sources: Aberdeen Group; BCG analysis, customer interviews
B2B MARKETPLACES PROMISE SIGNIFICANT BENEFITS TO
ALL PARTIES
Buyers Intermediaries Sellers
Benefits Enablers Benefits
• Improved supplier reach/

Liquidity • Increased customer reach
reduced search effort
• Richer customer
• Rich transactional data Collaboration
information
• Lower process costs Scale • Reduced process costs
• Lower prices Aggregation • Lower channel costs
TWO CATEGORIES OF B2B MARKETPLACES
Vertical, industry-specific B2B e-commerce marketplaces

Direct
goods
• Focus on delivering products and services to specific industries
Indirect
Horizontal, function-specific B2B e-commerce marketplaces
goods
and
• Offer the same products and services across different industries
services
B2B MARKETPLACES: EXAMPLES
PlasticsNet.com (Plastics)
Direct e-Steel.com (Steel)
goods Chemdex (Life sciences)
Floraplex (Flowers)
Works.com (Office supplies)

Indirect
goods MRO.com (Maintenance, repair and operations)
and Celarix (Logistics management and procurement)
services
iMark.com (Used capital equipment)
MARKETPLACE AND e-PROCUREMENT TECHNOLOGY PROVIDERS (I)
Direct
goods
Commerce-
CommerceOne One
BuySite MarketSite
Platform
Buyer.Ariba.com
Ariba
Intelisys IEC-Enterprise Network
Indirect Platform
goods
and
services
MARKETPLACE AND e-PROCUREMENT TECHNOLOGY PROVIDERS (II)
CommerceOne - Oil and Gas (Shell), Automotive (GM), Telecom (Bell South),
Aerospace (Boeing, Lockheed Martin, BAE, Raytheon)
Direct
goods Ariba - Petrocosm – Energy (Chevron), Science (Dupont),
EDS CoNext (12 industries), Food &
Beverage (Cargill), Travel & Transport (Sabre)
CommerceOne - Citibank (U.S.), BT (UK), NTT (Japan), SESAMi.NET (SE Asia),

Indirect Optus (Australia), Swisscom, Deutsche Telekom (Germany),
goods TD Bank (Canada), Banamex-Accival (Mexico), Beijing
and Enterprises et al (China)
services
Ariba.com SME (Dell)
Internet-Schmalenbachges-4-5-01-HW-dw-Muc.ppt © - 10 -
FURTHER B2B e-COMMERCE ENABLERS (I)
Direct
goods
Catalog ERP
Exchange
content vendors
and Logistics Transaction
managers
auction providers facilitators
and ERP system
solutions
aggregators integrators
Indirect
goods
and
services
FURTHER B2B e-COMMERCE ENABLERS (II)
Direct
goods
Deutsche Oracle
Hoppenstedt
Tradex Bank SAP
Harbinger UPS
OpenSite Amex
Aspect FedEx
Moai Visa EDS
Development
Citibank PWC
TPN Register
Indirect iEscrow
goods
and
services
TRANSACTION VOLUME ON e-MPS WILL GROW DRAMATICALLY—
HOWEVER, NUMBER OF MARKETPLACES WILL CONSOLIDATE
Development Transaction Volume and # e-Hubs
3,490
2,000
1,900
1,490
1,180 1,970
950
# of market-
places/e-Hubs
931
Transaction
500-1,200 volume on
243
19 78 marketplaces/
e-Hubs in B$
1999 2000 2001 2002 2003 2004
First wave: independent Second wave: e-Hubs created

start-up marketplaces by industry incumbents
Exploding number of start- Incumbents realizing Consolidation of liquidity on

ups potential and threat to their leading vertical e-Hubs in
business each industry
Reaching critical mass as an e-MP will depend on value-added offered to market participants
Sources: Forrester Research; Lehman Brothers; BCG analysis

ENERGY/UTILITIES, CHEMICALS AND MACHINERY WITH HIGHEST
INCUMBENT ACTIVITY
41
29
16
15
11 11
10 10
8 8 8
6 6 6
3
2
Energy/ Machinery Metal/Steel/ Pulp/Paper/ Construction Hospitality Electronics/ Telecom-

Utilities Mining Printing High-Tech munication
Chemicals/ Automotive Traffic/ Agriculture & Consumer Healthcare/ Aerospace/ MRO/

Petrochemicals Transportation Forestry Goods/Retail Pharma Defense Horizontals
Key industries
Automotive
Chemicals/
Petrochemicals
Electronics/High-
Tech
Internet-Schmalenbachges-4-5-01-HW-dw-Muc.ppt
Energy/Utilities
Machinery
Aerospace &
Defense
©
Agriculture &
Forestry
Construction
Consumer Goods &

Retail
IN NAFTA
Healthcare/
Pharma
Hospitality
Metals/Steel/
Mining
Pulp/Paper/
ROW
Printing
Asia/Pacific
Telecom-
Europe Strong in Construction and Traffic/Transportation
munication
Traffic/
Transportation
EU
NAFTA
MRO/Horizontals
MORE THAN 50 PERCENT OF INCUMBENT MARKETPLACES ORIGINATE
- 15 -
LESS THAN 10 PERCENT OF INDUSTRY e-HUBS HAVE A SELECTED
FINANCIAL SERVICES PROVIDER YET
Availability of Financial Services in e-Hubs
100%
80%
60%
40%
20%
0%
(1)
Consumer Goods
Electronics/High-
Construction
Energy/Utilities
Hospitality
MRO/Horizontals
Agriculture &
Automotive
munication
Transportation
Aerospace &
Petrochemicals
Machinery
Pulp/Paper/
Metals/Steel/
Telecom-
Defense
Forestry
Printing
Healthcare/
Pharma
Chemicals/
Mining
Traffic/
& Retail
Tech
As of October 2000
FS offered No FS
FS concept under concept yet
(1) Most energy exchanges expected to have one
development but
or several FS providers selected
no services offered yet
(2) Not including VC involvement of FS companies
OPPORTUNITY FOR ON-LINE FINANCIAL SERVICE PROVIDERS EXISTS IN
ALL TYPES OF MARKETPLACES
2005 Total market revenues U.S. and Europe (UK, France, Germany)
$B 8 7.2
Financial liquidity
6
5.0 Process optimization
Risk management
Transaction execution
4 3.5
0.5
0
Neutral Buyer-centric (1) Seller-centric (2) Web-EDI
Marketplace
(1) Includes e-procurement sites

(2) Includes e-shop sites
Source: BCG analysis
FOUR OVERARCHING ON-LINE FINANCIAL SERVICE NEEDS
Evaluate/ Pay offline

B2B Register on Select/ Order/ Receive/ Integrate
buyer/seller communicate
exchange accept order process order send information
value chain offering
Pay on-line
On-line Insure Process

financial Payments
Register Originate Validate Finance payment/ payment Reconcile Settle
services reporting
delivery on-line (1)
value chain
1. Risk 2. Financial 3. Transaction 4. Process

management liquidity execution optimization
RANGE OF ONLINE FINANCIAL SERVICES: DETAILS
On-line Insure Process

financial Payments
Register Originate Validate Finance payment/ payment Reconcile Settle
services reporting
delivery on-line
value chain
Elements: • Registration • Web-based • Digital • Terms of • Credit rating • Credit card • ERP • Clearing • Payments
• Rule ad- customer certification trade • Letter of • EFT(ACH, integration • Settlement reporting
ministration interface • Authentication • Loan credit wire) • A/P & A/R tools
• Net settle-
• EBPP • Authorization • Lease • Payment • e-Check integration ment • Bill
guarantee • Invoice- presentment
• Identification • Supply • Debit card for on-line
chain • Credit payments
• Purchasing matching payments
financing insurance card services
• Credit • Escrow • Dispute
• Swift resolution
under- • Payment
writing scheduling • Collections
• Factoring • Digitally • Payment
• Hedging signed returns
transactions processing
ONLY FEW BANKS HAVE ENTERED THE GAME TO BECOME SHAPERS
OF A NEW BUSINESS MODEL
Competition Analyses to Focus on a Few Players Only
1 Product offers 2 3
Stand-alone online
complementing offline Shaping the new business model
product offers
world
Share of banks Shaping other Cooperations Shifting FS to

offering this Simple web On-line E-sales E-procurement industries with other FS marketplace
service 0% presence banking solutions solution (M&O) providers providing
e.g.,
ABN Amro,
Barclay's,
BSCH,
Citigroup,
Banc of
America
e.g., Commerzbank,
Deutsche Bank,
Dresdner Bank, HVB(1)
e.g., Lloyds
100%
Focus of
(1) In alphabetical order analysis
CITIGROUP AND WELLS FARGO LEAD THE WAVE OF FS PROVIDING
IN U.S.
Providing FS to e-Hubs
Competitor
Finance Transaction Risk mgmt.
Trust service Trade finance Payments
service services FX
Citigroup (P) (P) (P) (P) (P) (P)
Wells Fargo (P) (P) (P) (P) (P) (P)
Banc of America P (A) (P) (P) (P)
US Bancorp (P) (P)
Fleet Boston (P) (P)
Amex (P) (P)
Chase Manhattan (P)
In implementation Announced
(P) Summer 2000 (A) Summer 2000

P End 2000 A End 2000
Sources: Press research; BCG analyses

U.S. BANKS FALL INTO TWO MAJOR COMPETING ALLIANCES
Partnerships for FS providing

FS provider Wells Bank of ABN US Fleet
Techn. Citigroup Chase Amex
providers Fargo America Amro Bancorp Boston
Ariba Ariba Commerce Services Network: Full scale

FS offering to eMPs
CommerceOne Integration of
CitiConnect
Integration of Integration of
SAP CitiConnect/ purchasing
Orbian cards
Oracle Integration of
CitiConnect(1)
i2 Financial Settlement Matrix:

One-stop-FS providing
to e-MPs
Intelysis
In implementation
(1) In 04/01 integration of OracleExchange
Sources: Press research; BCG analyses 1999 Summer 2000 End 2000
ABN AMRO AS KEY EUROPEAN PLAYER IN FS PROVIDING
Providing FS to e-Hubs
Competitor
Finance Transaction Risk mgmt.
Trust service Trade finance Payments
service services FX
ABN Amro (P) (A) (A) (P) (A) (A)
Barclay's (P) (P) (A)
BSCH Financial services in general were announced in Summer 2000
In implementation Announced
(P) Summer 2000 (A) Summer 2000

P End 2000 A End 2000

PARTNERSHIPS BETWEEN TECHNOLOGY PROVIDERS AND FS
PROVIDERS ARE UNDER CONSTRUCTION IN EUROPE
Partnerships for FS providing Partnership/suppliers for a special e-MP project
FS provider
Techn. CS First Dresdner BNP/SG/ Deutsche
ABN Amro Barclay's BSCH Lloyds TSB
providers Boston Bank Agricole Bank
Own
Ariba Integration
procurement
Own
of FS engine procurement
+ providing
Access to
CommerceOne C1 Global
MRO market-
place(1)
Trading Web
SAP MRO market-

place(1)
SME
Oracle B2B portal MRO
marketplace
i2
Broadvision B2B portal
Peoplesoft Own
procurement
Intershop Allago(1)
In implementation
(1) Online 1999 Summer 2000 End 2000
EXAMPLE: CITIGROUP
Five Objectives of Citigroup's e-Strategy
1. Create a comprehensive suite of consumer financial services, available anytime,

anywhere, on any device
2. Be the consumer payments' infrastructure of the Internet
3. Provide a comprehensive suite of corporate financial services and embed them in

B2B exchanges
4. Be a leader in Internet-based capital markets
5. Be a Web-enabled company and drive down costs
Sources: Citigroup conference presentation, November 2000; Forrester report, August 2000
COMPREHENSIVE APPROACH TO PROVIDING OF FINANCIAL SERVICES
Provide a comprehensive suite of corporate financial services and embed them in B2B exchanges
Wells Fargo Citi- Commerce One

i2 branded
FSM(1)
S1 e-MPs
Citigroup
providing Provi-
Commerce One
Citi strategy ding of ChemConnect
Oracle
Connect FS to key Omnexus
SAP
e-Hubs
Orbian
SAP
Develop full scale Acquire leading position

FS offering for e-MPs in e-MP market
Î Product coverage Î Sales coverage
(1) Financial settlement matrix

Sources: Press research; Citigroup conference presentation; BCG analysis
e-MP INITIATIVES HAVE FOUR KEY OBJECTIVES WITH RESPECT TO
PRODUCT COVERAGE
Relevance for product

e-MP initiative development Features Status Four key objectives
CitiConnect Suite of Citigroup Payments, FX, To be embedded in Embed Citigroup

payment products financing, procurement Oracle, CommerceOne products in software
cards, certificates, ERP and SAP platforms, suites of major B2B
integration status unclear enablers with
focus on buyer/seller
centric e-MPs
Financial Comprehensive suite of Payments Announced August Offer one-stop FS

settlement matrix financial services Purchasing cards 2000, pilot by end of solution integrating
integrating best-of- Escrow 2000, online Q1, 2001 products of different FS
breed products from Letters of Credit providers with
different FS providers Credit rating focus on neutral
FX marketplaces and SMEs
Orbian Innovative payment and Payments Announced July 2000, Develop innovative
online credit product Financing status unclear e-MP-specific products
based on commercial
paper program
Financial services Development of FS Payments Announced November Develop customized FS

platform for technology platform Escrow 2000, negotiations since solutions for key eHubs
ChemConnect integrating access to FS Financing March 2000
from Citigroup and FX
other FS providers
Citibranded e- Pilot customers for FS Announced Feb. 2000, Low relevance for
MPs products status unclear product coverage
Multi-facetted
Multi-facetted approach
approach for
for providing
providing of
of FS
FS to
to eMPs,
eMPs, but
but status
status of
of development
development remains
remains unclear
unclear
ALLIANCES ALSO STRENGTHEN SALES POSITION OF CITIGROUP
Partners Relevance for sales coverage
Oracle Integration of CitiConnect payment

CommerceOne solution in respective software
CitiConnect SAP platform
Citigroup FS on Oracle Exchange
Participation in Global Trading Web
Financial Wells Fargo FSM(1) additional sales channel

settlement matrix i2 Integration of product offering in i2
S1(2) Trade Matrix
Citigroup
Orbian SAP Low relevance for sales coverage
Financial services Chemconnect Prominent reference project with key

to key eHubs Omnexus e-Hubs excellent marketing
CommerceOne Citigroup as preferred FS provider to

Citibranded eMPs members of Global Trading Web
(1) Financial settlement matrix

(2) FS software provider
EXAMPLE: ABN AMRO
Strategy Based on Three Pillars
e-commerce
Close cooperation with software Integration into activities initiated

Direct providing of FS to e-MP
vendor by FS consortias
• Summer 2000 integration of ABN • Summer 2000 integration of ABN • In April ABN Amro announced the
Amro's financial service engine Amro's financial services into i2i signing up to bolero.net
into Ariba's platform announced announced
• ABN Amro is one founding
• Products to be integrated: • Services to be incooperated: member of identrus
automated clearing house (ACH) Escrow, LoC, FX and trade-related
information, Identrus-based trust • ABN Amro is member of the
• Further products seem to be services consortia founded maxtrade
planned (e.g., credit and risk (Reuters, ICC, EIU)
management solutions) • i2i powered by SAP markets
• ABN Amro sets up an Ariba-

powered B2B procurement
solution in summer 2000 and an
Ariba-powered B2B MRO
marketplace
ABN
ABN Amro
Amro plans
plans to
to invest
invest €1,800M
€1,800M into
into e-commerce
e-commerce initiatives
initiatives within
within coming
coming years
years
Source: Press research; BCG analysis

HYPOTHESES ON KEY SUCCESS FACTORS (I)
Characteristics of Offering
Integration of product offer Highly integrated

Separate products
package
to fit "best-of-
of FS from one
breeds" approach
provider
Specialist for Range of products offered Generalist: Full

one/few FS range of
products for FS products
e-MPs offered
High degree of Customization of products Standard

customization
products with
offered
(high integration little/no room for
effort) customization
Product Contact/interaction with FS provider Central unit with

specialists in e-MP focus;
different units of single point of
the bank contact
Possibility for Product development Marketable

collaborative products with
product existing reference
development implementations
FS provider takes Distribution of revenue potential & investment risk Risks and FS
revenues are
full implemen-
shared between
tation costs and e-MP and FS
revenues provider
HYPOTHESES ON KEY SUCCESS FACTORS (II)
Market Standing of FS Provider
General market position/brand
E-commerce experience/e-MP expertise
Competence in relevant financial products
Partnering qualities/readiness to take equity stake
Ability to deliver globally
Ability to offer state-of-the-art products
Ability to support implementation
Speed to market
Ability to provide user support and product updates

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Arbeitskreis

"Strategieentwicklung und Controlling in Banken"

Banking in der e-Supply Chain

Trillions Trillions 13.8

Note: All e-commerce data includes EDI/VAN

Model Architecture Horizontal example Vertical example

(1) Announced and/or only partially realized

• Time con- • Long RFQ, • Complex, • Difficult to • Manual • Few

• Costly to • Time con- • Error-filled • Inefficient, • No link to • No link to

Source of value How realized Observed results(1)

Lower product/service costs • Improved leverage • 5%-20% reduction in prices

Improved inventory turns • Shorter fulfillment cycle • Significant reductions in inventory

Buyers Intermediaries Sellers

Benefits Enablers Benefits

• Improved supplier reach/

Search Select Order Obtain Pay Integrate

Vertical, industry-specific B2B e-commerce marketplaces

Search Select Order Obtain Pay Integrate

Works.com (Office supplies)

Search Select Order Obtain Pay Integrate

Search Select Order Obtain Pay Integrate

CommerceOne - Citibank (U.S.), BT (UK), NTT (Japan), SESAMi.NET (SE Asia),

Search Select Order Obtain Pay Integrate

Search Select Order Obtain Pay Integrate

1999 2000 2001 2002 2003 2004

First wave: independent Second wave: e-Hubs created

Exploding number of start- Incumbents realizing Consolidation of liquidity on

Sources: Forrester Research; Lehman Brothers; BCG analysis

Energy/ Machinery Metal/Steel/ Pulp/Paper/ Construction Hospitality Electronics/ Telecom-

Chemicals/ Automotive Traffic/ Agriculture & Consumer Healthcare/ Aerospace/ MRO/

Consumer Goods &

(1) Includes e-procurement sites

Evaluate/ Pay offline

On-line Insure Process

1. Risk 2. Financial 3. Transaction 4. Process

On-line Insure Process

Share of banks Shaping other Cooperations Shifting FS to

Citigroup (P) (P) (P) (P) (P) (P)

Wells Fargo (P) (P) (P) (P) (P) (P)

Banc of America P (A) (P) (P) (P)

US Bancorp (P) (P)

Fleet Boston (P) (P)

Amex (P) (P)

Chase Manhattan (P)

(P) Summer 2000 (A) Summer 2000

Sources: Press research; BCG analyses

Partnerships for FS providing

Ariba Ariba Commerce Services Network: Full scale

i2 Financial Settlement Matrix:

ABN Amro (P) (A) (A) (P) (A) (A)

Barclay's (P) (P) (A)

BSCH Financial services in general were announced in Summer 2000

(P) Summer 2000 (A) Summer 2000

Sources: Press research; BCG analyses

SAP MRO market-

Broadvision B2B portal

1. Create a comprehensive suite of consumer financial services, available anytime,

2. Be the consumer payments' infrastructure of the Internet

General market position/brand

E-commerce experience/e-MP expertise

Competence in relevant financial products

Partnering qualities/readiness to take equity stake

Ability to deliver globally

Ability to offer state-of-the-art products

Ability to support implementation

Ability to provide user support and product updates