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E-Procurement: - Metamediaries
E-Procurement: - Metamediaries
E-Procurement: - Metamediaries
• E-Procurement
• Metamediaries
• Intermediation Opportunities
1
Sourcing: Search Costs
due to large number of
sellers
Replenishment:
Continued reliance
on old source
2
Electronic Data Interchange (EDI)
Definition.
- First developed in the late 1960s
- Business to Business exchange of standardized documents in
electronic form (e.g., Invoice, Purchase order)
Background.
• Early barriers: lack of standards, telecom infrastructure
• New national (X.12), international (EDIFACT) standards
• Used heavily by large companies (e.g., Fortune 1000)
• Enables re-structuring business relationships
3
Common EDI Applications in B2B Commerce
Route to Translate
mailbox X.12
Seller EDIFACT Transport
company
5
Why EDI was not sufficient?
6
Web based Procurement Process
5a.
9. Route to 5. Supplier
Check
Recipient Fulfillment
status
8. Accounts
Payable
6. Ship
7. Receiving
Product
7
The e-Procurement Cycle
Production Vs. Non-Production Items
Purchasing
Quantity Contracts, Discounts
Contracts
9
B2B
• E-Procurement
• Metamediaries
• Intermediation Opportunities
10
Large Market size
Markets ready
for
intermediaries
Some product Product
differentiation comparison hard
High search
costs
11
B2B Trading Models
1. Multi-vendor catalogs
• Price posted, Product comparison, Customization
• Chemdex, e-Chemicals, PlasticNet, NetBuy
2. Post and Browse
• Bulletin Board accessible by pre-qualified users
• One-on-one negotiation of non-standard products
• Catex (insurance), PaperExchange, CreditTrade
3. Auction
• Seller driven liquidation of surplus inventory (MetalSite)
• In reverse auction, buyer specifies items and lot-sizes
• Popularized by FreeMarkets, VerticalNet, Tradeout
12
B2B Revenue Models
• Transaction fees
Often paid by seller (e-Steel), sometimes shared by parties
Difficulty of collecting fees in post and browse exchanges
Pressure to waive fees to achieve acceptance
Metamediary Metamediary
Metamediary Metamediary Metamediary
Pr es
o d
cu
re g ui
m in g
en y
t
Intermediary Bu
Intermediary
Intermediary
Match
Credit verification buyers and Risk management
suppliers
Intermediary
n t
Se
e
Metamediary
illm
ttl
ulf
em
r f
e
en
d
Or
t
Metamediary Metamediary Metamediary Metamediary
A successful marketplace does more than matching buyers and suppliers!
14
Improve Information
Flows
Value
Improve Price /
Reduce Costs Creation by Quality
Intermediary
Build Liquidity
15
Increase
communication
channel efficiency
Improve
Increase the
Information Decrease the
number of
number of buyer- Flows communication
seller channels
channels
16
Carrying Cost Carrying Cost
Fulfillment Cost Fulfillment Cost
Transaction Transaction
Cost Cost
Workflow Cost
Search Cost Reduce Costs Workflow Cost
Search Cost
Different industries
Product Cost provide different cost
reduction opportunities! Product Cost
Price / Traditional
Quality cost of
Savings search Internet cost
from more of search
sellers
Value
Added
Number of Sellers
18
Build Liquidity
Transaction Central marketplace
automation leads to leads to
Improved Improved Reach
Velocity
Improved Reach +
Improved Velocity
= Liquidity
19
B2B
• E-Procurement
• Metamediaries
• Intermediation Opportunities
20
Buyers
Origins of
Intermediaries
Sellers Third Parties
21
Origins of Intermediaries: Sellers
Revenue Model
• Transaction fees 0.25%-2% on auctions and product guide,
small fee to use QuoteFinder
• Difficulty in collecting transaction fees 25
Origins of Intermediaries: Buyers
Buyers want catalogs or reverse auction
Automakers’ Covisint
26
Buyers Initiated Exchange: Covisint
Industry
• Procurement market for Automakers, over $350 billion
• Major Players: DaimlerChrysler AG, Ford, GM, Nissan, Renault
History
• Announced in Feb 2000
• 200 catalogs; 1000 users; 20,000 transactions by June 2001
• Total volume in 2001 is expected to be $129 Billions
Major Functions
• Procurement
• Catalogs
27
• Buyer / Seller auction
Auto makers’ Goals
Cut time and costs
Exchange engineering data
More suppliers
Custom cars
28
Regulatory Issues
- Auto makers not to combine requirements
- Auto makers can’t see needs of others
- Export regulations enforcement
- No loss in tax revenue
Requirements
- Currency conversion
- Language translation
- Supplier order management capabilities
29
Industry
History
• Airlines announced AirNewco as their B2B marketplace in 4/00
• Suppliers announced MyAircraft.com in 2/00
• AirNewco and MyAircraft merge to become Cordiem in 3/01
• First major B2B marketplace supported by buyers and sellers
• Partners - i2 Technologies, Ariba
• Competes with Exostar led by Boeing, Lockheed & Raytheon
• More than two dozen aerospace marketplaces
30
Major Functions
• Online catalogs
• Reverse and forward auctions
• Inventory and supply chain management tools
• Transaction support
Revenue Model
• Transaction fees on auctions, small fee for catalog listing
• Subscription fees for supply chain management services
• Both buyers and suppliers pay
31
Rules
– Neutral, global e-marketplace
– Open to any airline and supplier
– No requirement on membership or exclusive use
Sellers’ Goals
• Focus on selling after-market products and services
• Reduce inventory, errors, costs
Buyers’ Incentives
• Maintenance & engineering, fuel & fuel services, catering &
cabin services, airport support services & general procurement
• Locate and purchase products quickly
32
• Cut costs and time
3rd Party Intermediaries
History
• Launched in 1995 as an independent B2B marketplace
• Reduce price and transaction costs
• Worldwide expansion in 55 countries
35
Value Creation for New Suppliers
New buyer identification
Find new • Respond to inquiry
buyers • Receive certification M
O
Reduce sales costs
R
E
• Respond to RFQ S
Bid preparation
• Complete specs A
L Reduce transaction costs
E
S
• Conduct auction Technology
• Train seller
Enabler But face more competition!
• Award preparation
36
Challenges Facing Intermediaries
Revenue generation
Intense competition!
37
B2B Myths
• Speed is everything!
• Limited access!
• Pre-existing business relationship
• Higher level of integration
• Order confirmation, tracking
• Seller / buyer auctions
• More volume than public exchanges ($b 242 >
43 in 2000)!
• Example: Buyer GE $ 20b
39
What went wrong with Public Exchanges?
– Bias. Many exchanges required standardized product
descriptions by sellers, and often allowed price
comparison by buyers.
– Funding. Many independent exchanges were funded by
the financial community who pulled the plug when they
did not sufficient revenue.
– Technology. Lack of integration between the exchange
and supplier ERP system. Buyers had to call the supplier
anyway!
– Complexity. Too many terms (specs, pricing, availability,
delivery dates) require direct negotiation between buyers
and sellers.
40
Its not the technology, stupid!
• Its about redesigning workflows, processes
and structures (BPR / Change Management)!
• Its about collaboration between various
parties inside and outside the company! Its
about the cross-functional approach.
• Its about changing decision making! Multi-
million dollar contracts today are decided by
higher ups who act in weeks!
• The cost of training and process redesign
exceeds technology costs.
41
Market Dynamics
42
Key Points
• E-Procurement is a must!