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Company centric B2B and Eprocurement


... so as to reduce inventory and stock-outs and enhance just-in-time delivery ... request for quote (RFQ): The 'invitation' to participate in a tendering (bidding) ... – PowerPoint PPT presentation

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Title: Company centric B2B and Eprocurement

Company centric B2B and E-procurement
  • INFO4010 Readings in E-commerce
  • Seminar 4

  • General Motors case
  • B2B characteristics
  • Basic B2B transaction types
  • Sell-side marketplace
  • Buy-side marketplace
  • B2B infrastructure

General Motors B2B Initiatives
  • The Problem
  • GM expects to custom-build the majority of its
    cars by 2005
  • The company hopes to use the system to save
    billions of dollars by reducing its inventory of
    finished cars
  • GM sells custom-designed cars online through its
    dealers sites avoiding channel conflict
  • This collaboration requires sharing information
    with dealers and suppliers
  • Operational problems
  • disposing of manufacturing machines that are no
    longer sufficiently productive
  • procurement of commodity products

General Motors B2B Initiatives (cont.)
  • The Solution
  • GM established an extranet infrastructure called
    ANX (Automotive Network eXchange)
  • ANX has evolved into the consortium exchange supported by other automakers
  • Capital assets problem
  • GM implemented its own electronic market from
    which forward auctions are conducted
  • Resource procurement problem
  • GM automated the bidding process using reverse
    auctions on its e-procurement site

General Motors B2B Initiatives (cont.)
  • The Results
  • Within just 89 minutes after the first forward
    auction opened, eight stamping presses were sold
    for 1.8 million
  • Off-line method, a similar item would have sold
    for less than half of its online price, and the
    process would have taken 4 to 6 weeks
  • Online reverse auction prices are significantly
    lower than the prices the company had been paying
    for the same items previously negotiated by
    manual tendering
  • Administrative costs per order have been reduced
    by 40
  • Most GM dealers and thousands of GMs suppliers
    are connected on a common extranet platform

General Motors B2B Initiatives (cont.)
  • What can we learn
  • Involvement of a large company in three EC
  • connecting with dealers and suppliers through an
  • electronically auctioning used equipment to
  • conducting purchasing via electronic bidding
  • B2B transactions
  • Company can be a seller, offering goods or
    services to many corporate buyers
  • Company can be a buyer, seeking goods or services
    from many corporate sellers (suppliers)
  • A company can
  • employ auctions
  • use electronic catalogs
  • use other market mechanisms

B2B history
B2B characteristics
  • Types of transactions
  • Spot buying The purchase of goods and services
    as they are needed, usually at prevailing market
  • Strategic sourcing Purchases involving long-term
    contracts that are usually based on private
    negotiations between sellers and buyers
  • Types of materials
  • 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)
  • MROs (maintenance, repairs, and operations)
    Indirect materials used in activities that
    support production

B2B characteristics (cont)
  • Direction of trade
  • Vertical marketplaces Markets that deal with one
    industry or industry segment (e.g., steel,
  • Horizontal marketplaces Markets that concentrate
    on a service, material, or a product that is used
    in all types of industries (e.g., office
    supplies, PCs)

Basic B2B transaction types
  • Sell-side
  • One seller to many buyers
  • Buy-side
  • One buyer from many sellers
  • Exchanges
  • Many sellers to many buyers
  • Collaborative commerce
  • Communication and sharing of information, design,
    and planning among business partners

Basic B2B transaction types (cont)
Supply chain relationships in B2B
  • 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
  • purchase of a product by the end consumer

One-to-Many Sell-Side 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
  • Three major direct sales methods
  • selling from electronic catalogs
  • selling via forward auctions
  • one-to-one selling
  • B2B sellers
  • click-and-mortar manufacturers or intermediaries,
    usually distributors or wholesalers

Direct sales from catalogs
  • Examples
  • Office product intermediary
  • Microsofts MOET
  • Configuration and customization

Selling via Auctions
  • Forward auction
  • Selling from the companys own site
  • Using intermediaries

One-from-Many Buy-Side Marketplaces
  • 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 Marketplace (cont)
  • Procurement methods
  • Buy from manufacturers, wholesalers, or retailers
    from their catalogs, and possibly by negotiation
  • Buy from the catalog of an intermediary that
    aggregates sellers catalogs or buy at industrial
  • Buy from an internal buyers catalog in which
    company-approved vendors catalogs, including
    agreed upon prices, are aggregated (desktop
  • Conduct bidding or tendering (a reverse auction)
    in a system where suppliers compete against each
  • Buy at private or public auction sites in which
    the organization participates as one of the
  • Join a group-purchasing system that aggregates
    participants demand, creating a large volume
  • Collaborate with suppliers to share information
    about sales and inventory, so as to reduce
    inventory and stock-outs and enhance just-in-time

  • e-procurement The electronic acquisition of
    goods and services for organizations
  • Implementing e-procurement
  • Sap
  • Ariba
  • Commerce One

Buy-Side E-Marketplaces Reverse Auctions
  • One of the major methods of e-procurement is
    through reverse auctions (tendering or bidding
  • 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

A Pioneer General Electrics TPN
  • Procurement revolution at GETrading Process
    Network (TPN) Post
  • With this online system, the sourcing department
    received the requisitions electronically from its
    internal customers and sent off a bid package to
    suppliers around the world via the Internet
  • The system automatically pulled the correct
    drawings and attached them to the electronic
    requisition forms

Other E-Procurement Methods
  • Internal marketplace The aggregated catalogs of
    all approved suppliers combined into a single
    internal electronic catalog
  • Industrial malls
  • Distributors that aggregate products from
    hundreds or thousands of suppliers in one place
  • Horizontalcarrying MRO (nonproduction) materials
    for use in a variety of industries
  • Verticalcarrying products used by one industry
    but at various segments of the supply chain
  • Group purchasing
  • Internal aggregation
  • External aggregation

B2B infrastructure
  • Extranets and EDI
  • Electronic data interchange(EDI)
  • The electronic transfer of specially formatted
    standard business documents, such as bills,
    orders, and confirmations sent between business
  • Benefit of EDI
  • Stream line companies' interactions with trading
  • JIT processing

Traditional EDI
  • EDI translation software
  • different industries (and countries) have
    developed their own EDI standards.
  • Obtain EDI translation software
  • Communication channels
  • Direct link networks
  • Private or propriety networks
  • VANs
  • Mailboxing, protocol conversion, standard

Traditional EDI (cont)
  • Shortcomings
  • High initial investment
  • 5,000 (for PC-based system) to 250,000 (for
    mainframe applications)
  • High operating cost
  • VAN services expenses consist of an installation
    fee, recurring per-transaction fees, and monthly
    subscription and maintenance fees

Internet-based EDI
  • Using e-mail to transport EDI messages in place
    of VAN
  • The Internet RFC 1767 defined how EDI
    transactions can be encapsulated in the MIME
    types. The definition complies with both ANSI X12
    and EDIFACT standards.
  • Web-based EDI

B2B integration
  • Integration
  • Integration with existing internal infrastructure
    and applications
  • EC applications of any kind need to be connected
    to the existing internal information systems
  • Integration with business partners
  • EC can be integrated more easily with internal
    systems than with external ones

XML in B2B integration
  • XML (eXtensible Markup Language)
  • XML is a cross-platform, software and hardware
    independent tool for transmitting information.
  • XML is a markup language much like HTML
  • Difference with HTML
  • XML was designed to describe data
  • HTML was designed to display data
  • XML tags are not predefined. You must define your
    own tags
  • Web services
  • A Web service is a software system designed to
    support interoperable machine-to-machine
    interaction over a network. It has an interface
    described in a machine-processable format
    (specifically WSDL). Other systems interact with
    the Web service in a manner prescribed by its
    description using SOAP-messages, typically
    conveyed using HTTP with an XML serialization in
    conjunction with other Web-related standards.

B2B Conceptual model
-- Business Internet Consortium (BIC) High level
conceptual model for B2B integration Version
2.0, 2002