B2B E-Commerce: Selling and Buying in Private E-Markets

Chapter 5
B2B E-Commerce:
Selling and Buying in Private E-
Markets
Mr. Erwin S. Sison
OSA Director
St. Nicolas College of Business and Technology
erwin22sison@yahoo.com
essison22@gmail.com
Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Learning Objectives
1. Describe the B2B field.
2. Describe the major types of B2B models.
3. Discuss the characteristics of the sell-side
marketplace, including auctions.
4. Describe the sell-side intermediary models.
5. Describe the characteristics of the buy-side
marketplace and e-procurement.
6. Explain how reverse auctions work in B2B.

Learning Objectives
7. Describe B2B aggregation and group purchasing
models.
8. Describe other procurement methods.
9. Explain how B2B administrative tasks can be
automated.
10. Describe infrastructure and standards requirements
for B2B.
11. Describe Web EDI, XML, and Web Services.

5.1 Concepts, Characteristics,
and Models of B2B EC
• business-to-business e-commerce (B2B EC)
Transactions between businesses conducted electronically
over the Internet, extranets, intranets, or private networks; also
known as eB2B (electronic B2B) or just B2B

Focus on e-Business Applications
Knowledge Management/Business Intelligence

E-Commerce
E-Customer Relationship
Consumers (CRM)
Businesses &
Businesses (SRM)
Procurement Trading E-Channel

Network Network Management
M:1 M:N 1:N
E-Portal Management
E-Business, E-Services
SCM/ERP/Legacy Appls

Exhibit 5.1 Generations of B2B E-Commerce
(Key Drivers for B2B E-Commerce)
Non-IT
Application
Management
Collaboration
With Suppliers
And Buyer
Integration
Internal/External
Collaborative
Business
e-Government Commerce
Process
Personalize Mobile Management
And Customize Commerce
Web
e-CRM Services
e-Marketplaces
Online Intelligent
Exchange e-Learning
Ordering Systems
Publish B2C, B2B
Business values Expert Sales
And Promote Actions Multichannel
System
1st 2nd 3rd
4th 5th (current)
Generation Generation Generation
Generation Generation
1998 1999 2000 2001 2002 and Beyond
Concepts, Characteristics, and
Models of B2B EC (cont.)
• B2B characteristics
o Parties to the transaction
• Online intermediary: An online third party that brokers a transaction online
between a buyer and a seller; can be virtual or click-and-mortar
o Types of transactions
• Spot buying: The purchase of goods and services as they are needed, usually at
prevailing market prices
• Strategic (systematic) sourcing: Purchases involving long-term contracts that
are usually based on private negotiations between sellers and buyers

• Basic B2B transaction types
o Sell -side (1:M)
One seller to many buyers
o Buy -side (M:1)
One buyer from many sellers
o (M:M)
Exchanges
Many sellers to many buyers
o
Collaborative commerce(M and Connected) and
supply chain improvement
Communication and sharing of information, design, and
planning among business partners
Concepts, Characteristics,

• Collaborative commerce (C-commerce)
o Communication, design, planning, and information sharing among business partners
o To qualify as C-commerce, the activities that are shared must represent far more than just
financial transactions (e.g., design, manufacture, or management)

• The Basic Types of B2B E-Marketplaces and
Services
o One-to-many and many-to-one: private e-marketplaces
• company-centric EC
E-commerce that focuses on a single company’s buying needs
(many-to-one, or buy-side) or selling needs (one-to-many, or
sell-side)
• private e-marketplaces
Markets in which the individual sell-side or buy-side company
has complete control over participation in the selling or buying
transaction
- Intermediaries

o Many-to-many: exchanges
• exchanges (trading communities or trading exchanges)
Many-to-many e-marketplaces, usually owned and run by a
third party or a consortium, in which many buyers and many
sellers meet electronically to trade with each other
• public e-marketplaces
Third-party exchanges that are open to all interested parties
(sellers and buyers)
o Supply chain activities and collaborative commerce
o B2B2C

• B2B Characteristics
o Parties to the transaction: sellers, buyers, and intermediaries
• online intermediary
An online third party that brokers a transaction online between a buyer and a seller;
may be virtual or click-and-mortar

o Types of materials traded
• direct materials
Materials used in the production of a product (e.g., steel in a car or paper in a book)
• indirect materials
Materials used to support production (e.g., office supplies or light bulbs)
• MRO (maintenance, repair, and operation)
Indirect materials used in activities that support production – nonproduction
materials.

• Direction of trade
o marketplaces: Markets that deal with one industry or industry segment (e.g.,
electronics, cars, steel, chemicals)
o marketplaces: Markets that concentrate on a service, material, or a product
Vertical
that is used in all types of industries (e.g., office supplies, PCs)
Horizontal

• SUPPLY CHAIN RELATIONSHIPS IN B2B
o The supply chain process consists of a number of
interrelated subprocesses and roles
• Acquisition of materials from suppliers
• Processing of a product or service
• Packaging it and moving it to distributors and retailers
• The eventual purchase of a product by the end consumer
o A B2B private e-marketplace provides a company with
high supply chain power and high capabilities for online
interactions

• Virtual Service Industries in B2B
o Travel and hospitality services
o Real estate
o Financial services
o Online stock trading
o Online financing
o Other online services

Concepts, Characteristics, and Models of
B2B EC
• Benefits of B2B
o Eliminates paper and reduces administrative costs.
o Expedites cycle time
o Lowers search costs and time for buyers
o Increases productivity of employees dealing with buying and/or
selling
• Reduces errors and improves quality of services.
o Reduces inventory levels and costs
o Increases production flexibility, permitting just-in-time delivery
o Facilitates mass customization
o
Increases opportunities for collaboration

• The Limitations of B2B
o Channel conflict
o Operation of public exchanges

5.2 One-to-Many:
Sell-Side E-Marketplaces
• sell-side e-marketplace
A Web-based marketplace in which one company
sells to many business buyers from e-catalogs or
auctions, frequently over an extranet
o B2B Sellers
o Customer Service
• Three major direct sales methods:
1. selling from electronic catalogs
2. selling via forward auctions (GM case)
3. one-to-one selling
One-to-Many:
One seller

One-to-Many:
• Direct Sales from Catalogs
o Configuration and customization
o Benefits and limitations of direct sales from catalogs
• The benefits of direct sales are similar to that of B2C
• Limitations
o How to find a buyer
o Channel conflicts with their existing distribution systems
o The cost to the customers can be high

One-to-Many:
• Direct Sales: The Example of Cisco Systems
o Customer service
o Online ordering by customers
o Tracking order status
• Benefits
o Reduced operating costs for order taking
o Improved quality
o Reduced technical support staff cost
o Reduced software distribution costs
o Faster service

Sell-Side Marketplaces
(cont.)
• Major benefits of direct sales are:
o Lower order-processing costs and less paperwork
o A faster ordering cycle
o Fewer errors in ordering and product configuration
o Lower search costs of products for buyers
o Lower search costs of finding buyers for sellers
o Sellers can advertise and communicate online
o Lower logistics costs
o Ability to offer different catalogs and prices to different
customers

5.3 Selling via
Intermediaries and Distributors
• Manufacturers frequently use intermediaries to distribute their
products to a large number of buyers, known as distributors
• The intermediaries usually buy products from many vendors
and aggregate them into one catalog from which they sell
• Now, many of these distributors also are selling online

5.4 Selling via Auctions
• Using Auctions on the Sell
Side
o Revenue generation
o Cost savings
o Increased “stickiness”
o Member acquisition and
retention

Selling via Auctions
• Auctioning from the Company’s Own Site
o Why should a company pay a commission to an intermediary if the intermediary cannot
provide the company with added value
o If a company decides to auction from its own site, it will have to pay for infrastructure
and operate and maintain the auction site

Selling via Auctions
• Using Intermediaries in Auctions
o An intermediary may conduct private auctions for a
seller, either from the intermediary’s or the seller’s site
o A company may choose to conduct auctions in a public
marketplace, using a third-party hosting company
o Benefits
• No additional resources are required
• No hiring costs or opportunity costs associated with the
redeployment of corporate resources
• Offer fast time-to-market
• Billing and collection efforts, are handled by the
intermediary rather than the company
Sell-Side Cases I (Cisco)
• Direct sales: Cisco Systems
o World’s leading producer of routers, switches, and network interconnection services
o Cisco’s portal began with technical support for customers and developed into one of the
world’s largest direct sales EC sites

Sell-Side Cases (cont.)
• Customer service
o Applications offered:
• software downloads
• defect tracking
• technical advice
o 85% of customer service inquiries and 95% of software
updates are delivered online
• Online ordering by customers
o Provides online pricing and configuration tools to customers
o 98% are now placed through Cisco Connection Online
(CCO)
• Order status

Sell-Side Cases I (Cisco)
- Summary
• Direct Sales: The Example of Cisco Systems
o Customer service
o Online ordering by customers
o Tracking order status
• Benefits
o Reduced operating costs for order taking
o Improved quality
o Reduced technical support staff cost
o Reduced software distribution costs
o Faster service

Sell-Side Case II - Boeing
• B2B intermediary: Boeing’s parts marketplace
o World’s largest maker of airplanes for commercial and
military customers
o Major goal of Boeing’s intermediary parts market,
called PART is supporting customers’ maintenance
needs as a customer service
o Online strategy is to provide a single point of online
access through which airlines (buyers) and the
maintenance and parts providers (suppliers) can access
data about the parts they need
o Began using traditional EDI

o 1996, Boeing introduced its PART page on the Internet
o Customers around the world could
• check parts availability and pricing
• order parts
• track order status
o Less than a year later, about 50 percent of Boeing’s customers used PART for parts
orders and customer service inquiries

o Boeing OnLine Data (BOLD) enables mechanics and technicians at the airport to access
the technical manuals they need for repairs
o These manuals are now available in digital form, and mechanics and technicians can
access them via wireline or wireless devices

Examples
Examples of
of Different
Different B2B
B2B E-Commerce
E-Commerce Sites
Sites
Used
Used by
by Organizational
Organizational Buyers
Buyers (and
(and Sellers)
Sellers)
All sellers Collaboration

and buyers Best search Hub
at all levels tool sites
Exchanges
“Vertical” depth
across firms at
Communities
different levels of
production &
distribution Procurement Hub
process
Catalog site
Best search
One of two levels
(a seller to tool sites
a buyer)
One One Many

business specific industries
industry
“Horizontal” breadth of goods and services

PORTER’S FIVE COMPETITIVE FORCES
MODEL
NEW
MARKET
Threats SUBSTITUTE
PRODUCTS
ENTRANTS & SERVICES
•Switching cost
•Access to •Redefine products
distribution channels and services
•Economies of scale •Improve
INDUSTRY price/performance
THE FIRM COMPETITORS
•Cost-effectiveness
•Selection of suppler •Market access •Buyer selection
•Threat of backward •Differentiation of •Switching costs
integration product or service •Differentiation
SUPPLIERS CUSTOMERS
Bargaining power

N
Dr. Chen, The Trends of the Information Systems Technology TM -36
The Five Forces Model and IS
• The Five Forces Model provides a way to think about how
information resources can create competitive advantage.
• Using Porter’s Model, General Managers can:
o Identify key sources of competition they
face.
o Recognize uses of information resources to
enhance their competitive position against
competitive threats
o Consider likely changes in competitive
threats over time
N
Porter’s Five Forces
Model and Value Chain
• The value chain model highlights specific
activities in the business where competitive
strategies can be best applied and where
information systems are most likely to have a
strategic impact.
• Therefore, the value chain model can be
employed to identify specific, critical leverage
points where a firm can use IT most effectively
to enhance its competitive position.

Using Information Resources to Alter
the Value Chain
• The Value Chain model suggest that competition
can come from two sources:
o Lowering the cost to perform an activity and
o Adding value to a product or service so buyers will be willing to pay more.
• Lowering costs only achieves competitive

advantage if the firm possesses information on the
competitors’ cost structure
• Adding value is a strategic advantage if a firm
possesses accurate information regarding its
customer such as: which products are valued?
Where can improvements be made? When to …

N
5.5 One-from-Many: Buy-Side
Marketplaces and E-Procurement
• Buy-side e-marketplace: A corporate-based acquisition site
that uses reverse auctions, negotiations, group purchasing, or
any other e-procurement method

One-from-Many: Buy-Side
Marketplaces and E-Procurement (cont.)
• Inefficiencies in traditional procurement management
o Procurement management: The coordination of all the
activities relating to purchasing goods and services
needed to accomplish the mission of an organization
o Maverick buying: Unplanned purchases of items
needed quickly, often at non-pre-negotiated, higher
prices
• e-procurement: The electronic acquisition of goods and
services for organizations

One-from-Many: Buy-Side E-Marketplaces
and E-Procurement
• Six Main Types of E-Procurement (see p.234)
o e-sourcing
•Identifying new suppliers for a specific category of
purchasing requirements using Internet tech.
o e-tendering
•Sending requests for information and prices to suppliers
and receiving the suppliers’ responses from Internet tech.
o e-reverse auctioning
o e-informing
o Web-based ERP (electronic resource planning)
o e-MRO (maintenance, repair and operating)

Marketplaces
and E-Procurement

Exhibit 5.5 The E-Procurement Process: A Buyer’s View
Search for Vendors and Products Initiate a Purchase Order (PO)

E-catalogs, brochures,
Conventions, exhibits, Electronic form or rigger ready order.
Telephone calls, visits.
Quality Vendors One-from-Many: Buy-Side

Which vendors we can do business with? Marketplaces and E-
Research firms, financial stability, Procurement
credit history.
Arrange a pick-up or Receive shipment

Select a Market Mechanism
Private, public, auctions, exchange. Check shipping document
Tendering system has a special process.
Compare and Negotiate

Price, financing , delivery,
Quality, etc.
Make Payment
Make a Purchase
Approve payment
(Individual or committee)
Arrange money transfer.
Have a contract.
Arrange payment.
Pre-Purchase Activities After-Purchase Activities

Benefits of E-Procurement
• The Goals and Benefits of E-Procurement
o Increasing the productivity of purchasing agents
o Lowering purchase prices
o Improving information flow and management
o Minimizing the purchases made from non-contract vendors
o Improving the payment process and savings due to expedited
payments
o Establishing efficient, collaborative supplier relations
o Ensuring delivery on time, every time
o Slashing order-fulfillment and processing times by leveraging
automation

Implementing E-Procurement
• Implementing e-procurement—major e-procurement
implementation issues
o Fitting e-procurement into the company EC strategy
o Reviewing and changing the procurement process itself
o Providing interfaces between
e-procurement with integrated enterprise wide information
systems such as ERP or supply chain management (SCM)
o Coordinating the buyer’s information system with that of the
sellers; sellers have many potential buyers
o Consolidating the number of regular suppliers to a minimum
and assuring integration with their information systems, and if
possible with their business processes

One-from-Many: Buy-Side E-Marketplaces
and E-Procurement
• e-sourcing
• The process and tools that electronically enable any activity in
the sourcing process, such as quotation/tender submission and
response, e-auctions, online negotiations, and spending
analyses

5.6 Buy-Side E-
Marketplaces: Reverse
Auctions
• One of the major methods of e-procurement is through reverse
auctions (tendering or bidding model)
request for quote (RFQ): The “invitation” to

participate in a tendering (bidding) system
• The reverse auction method is the most common model for
large MRO purchases as it provides considerable savings

5.7 Other E-Procurement Methods
• Internal procurement marketplace
- The aggregated catalogs of all approved suppliers
combined into a single internal electronic catalog
- Benefits of internal marketplaces
 corporate buyers quickly find what they want, check
availability and delivery times, and complete an electronic
requisition form
 reduce number of regular suppliers
 easy financial controls
• Desktop purchasing
o Direct purchasing from internal marketplaces without the
approval of supervisors and without the intervention of a
procurement department
Other E-Procurement Methods (cont.)
• Group purchasing: The aggregation of orders from several

buyers into volume purchases so that better prices can be
negotiated
o Internal aggregation—companywide orders are
aggregated using the Web and replenished
automatically
• This system only works for very large firms
o External aggregation—provide SMEs with better
prices, selection, and services by aggregating
demand online and then either negotiating with
suppliers or conducting reverse auctions

Other E-Procurement Methods
• Buying from E-Distributors
• Purchasing Direct Goods
• Electronic Bartering
o bartering exchange
o An intermediary that links parties in a barter; a company
submits its surplus to the exchange and receives points of
credit, which can be used to buy the items that the
company needs from other exchange participants
• Buying in Exchanges and Industrial Malls

5.8 Automating B2B Tasks
• Contract Management
o Contract-management software can:
• Reduce contract negotiation time and efforts
• Facilitate inter- and intracompany contract analysis and development
• Provide for proactive contract compliance management
• Enable enterprisewide standardization of contracts
• Improve understanding of contract-related risks
• Provide a more efficient approval process

Automating B2B Tasks
• Spend Management
o Tools and features may be found in spend-management
software include:
• A data warehouse repository designed to manage data from
multiple data sources
• Data management of contracts, supplier catalogs, and product
content
• Data management of pricing
• Detailed standard and ad-hoc purchasing activity analysis and
report tools
• Updates, notifications, and alerts regarding purchasing

Automating B2B Tasks
• Sourcing Management and Negotiation
o Tools and features may be found in sourcing management
software include:
• Bid comparison, including exports of detailed bid data
• User management functions that eliminate data redundancy,
simplify data management, and reduce risk to data integrity
• Weighted scoring of parameters to calculate the total value offered
by suppliers
• Total merchandise purchased cost model with bids winners
selection and ranking
• Reverse auctions and sealed bids, with a full set of features such
as proxy bids and bid-time extensions
• Negotiation support tools

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Chapter 5

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Knowledge Management/Business Intelligence

Procurement Trading E-Channel

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Increases opportunities for collaboration

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

All sellers Collaboration

One One Many

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

• Lowering costs only achieves competitive

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Search for Vendors and Products Initiate a Purchase Order (PO)

Quality Vendors One-from-Many: Buy-Side

Arrange a pick-up or Receive shipment

Compare and Negotiate

Pre-Purchase Activities After-Purchase Activities

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

request for quote (RFQ): The “invitation” to

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

• Group purchasing: The aggregation of orders from several

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce

Pearson/Prentice Hall & Dr. Chen, Electronic Commerce