ONLINE FILE W5.1 GENERATIONS OF B2B E-COMMERCE

Transcription

1 ONLINE FILE W5.1 GENERATIONS OF B2B E-COMMERCE EXHIBIT W5.1.1 Non-IT Application Management Collaboration with Suppliers and Buyer Integration Publish and Promote Online Ordering B2C, B2B Auctions E-Government Personalize and Customize E-Marketplaces Exchanges Business Value Collaborative Commerce Supply Chain Improvements Mobile Commerce E-CRM E-Learning Multichannel Internal/External Business Process Management RFID and Others Web Services Intelligent Systems Expert Sales Systems 1st Generation nd Generation rd Generation th Generation th Generation 2002 and Beyond

2 W5.2 Part 3: Business-to-Business E-Commerce ONLINE FILE W5.2 Application Case BUYING FROM VIRTUAL SELLER BIGBOXX.COM BigboXX.com (bigboxx.com), based in Hong Kong, is a B2B retailer of office supplies. It has no physical stores and sells products through its online catalog; thus, bigboxx.com is an online intermediary. The company has three types of customers: large corporate clients, medium-sized corporate clients, and small office/home offices (SOHOs). It offers more than 8,000 items from 300 suppliers. BigboXX.com s goal is to sell its products in various countries in Southeast Asia. The company s portal is attractive and easy to use, and includes tutorials that instruct users on how to use the Web site. Once registered, the user can start shopping using the online shopping cart. Users can look for items by browsing through the online catalog or by searching the site with a search engine. The ordering system is integrated with an SAP-based back-office system. Using its own trucks and warehouses, deliveries scheduled online are made within 24 hours. Users can pay by cash or by check (upon delivery), via automatic bank drafts, by credit card, or by purchasing card. Soon users will be able to pay through Internetbased direct debit, by electronic bill presentation and payment, or by Internet banking. BigboXX.com provides numerous value-added services for customers. Among these are the ability to check item availability in real time; the ability to track the status of each item in an order; promotions and suggested items based on customers user profiles; customized prices for every product, for every customer; control and centralapproval features; automatic activation at desired time intervals of standing orders for repeat purchasing; and a large number of Excel reports and data, including comparative management reports. Bigboxx.com began operations in spring By the end of 2006, it had over 8,500 registered customers. By 2007, bigboxx.com also offered Print Center for digital and offset printing, Premium Center that sources gift items for promotions, the Records Management Service that offers secure document storage solutions, and the Office Relocation Service that handles a full-range of relocation arrangements for offices. In 2008, bigboxx and Office Depot formed a strategic alliance to provide office products and services to corporate customers in Hong Kong, a key market for many global companies. The relationship between Office Depot and bigboxx.com will provide a complete procurement solution for customers in Hong Kong. Questions 1. Enter bigboxx.com and staples.com, and compare their B2B offerings and purchase processes. (Take the tutorial at bigboxx.com.) What support services are provided? 2. Someday customers may become accustomed to buying office supplies online. Then, they may try to buy directly from the manufacturers. Will bigboxx.com or Staples.com then be disintermediated? Why or why not? REFERENCES FOR ONLINE FILE W5.2 bigboxx.com (accessed May 2009). Reuters. Office Depot Announces Strategic Alliance with bigboxx.com to Serve International Accounts in Hong Kong. June 5, reuters.com/article/ pressrelease/idus jun-2008+bw (accessed April 2009).

3 Chapter Five: B2B E-Commerce W5.3 ONLINE FILE W5.3 Application Case WHIRLPOOL B2B TRADING PORTAL Whirlpool (whirlpool.com) is a $19 billion global corporation based in Benton Harbor, Michigan. It is in the company s best interest to operate efficiently and to offer as much customer service for the members (business partners) of its selling chain as possible. It is a complex job, because the partners are located in 170 countries. Middle-tier partners, who comprise 25 percent of the total partner base and 10 percent of Whirlpool s annual revenue, were submitting their orders by phone or fax because they were not large enough to have system-to-system computer connections direct (such as EDI) to Whirlpool. To improve customer service for these dealers, Whirlpool developed a B2B trading partner portal (Whirlpool Web World), using IBM e-business solutions. The technologies enable fast, easy Web self-service ordering processes. Using these self-service processes, Whirlpool was able to cut the cost per order to under $5 a savings of 80 percent. The company tested ordering via the Web by developing a portal for low-level products. It was so successful that Whirlpool created a second-generation portal, which allows middle-tier trade partners to place orders and track their status through a password-protected site. Simultaneously, the company implemented SAP R/3 for order entry, which is utilized by the middle-tier partners on the second-generation portal. The company also is using IBM s Application Framework for e-business, taking advantage of its rapid development cycles and associated cost reductions. Whirlpool s global platform provides its operations with resources and capabilities few other manufacturers can match. Whirlpool s global procurement, product development, and information technology organizations help the company s operations reduce costs, improve efficiencies, and introduce a continuous stream of relevant innovation to consumers. Using the same IBM platform, Whirlpool launched a B2C site for U.S. customers for ordering small appliances and accessories. The site was so successful that the company realized a 100 percent ROI in just five months. Questions 1. How do Whirlpool s customers benefit from the portal? 2. What are the benefits of the trading portal for Whirlpool? 3. Relate the B2B sell side to a B2C Webstore. REFERENCE FOR ONLINE FILE W5.3 IBM. Whirlpool s B2B Trading Portal Cuts per Order Cost Significantly. White Plains, NY: IBM Corporation Software Group, Pub. G , Online File W5.4 Extranets An extranet uses the TCP/IP protocol to link intranets in different locations (as shown in Exhibit W5.4.1). Extranet transmissions are usually conducted over the Internet, which offers little privacy or transmission security. Therefore, it is necessary to add security features. This is done by creating tunnels of secured data flows, using cryptography and authorization algorithms, to provide secure transport of private communications. An Internet with tunneling technology is known as a virtual private network (VPN) (see en.wikipedia.org/wiki/virtual_private_network). extranet A network that uses a virtual private network to link intranets in different locations over the Internet; an extended intranet.

4 W5.4 Part 3: Business-to-Business E-Commerce Online File W5.4 EXHIBIT W5.4.1 The Structure of an Extranet Other Business Partners, Government Intranets My Suppliers A, B, C... Internet with VPN Internet with VPN Intranets My Field Employees My Company Internet with VPN Intranet B2B My Customers Intranet Extranets provide secured connectivity between a corporation s intranets and the intranets of its business partners, materials suppliers, financial services, government, and customers. Access to an extranet is usually limited by agreements of the collaborating parties, is strictly controlled, and is available only to authorized personnel using a secure password and log-in. The protected environment of an extranet allows partners to collaborate and share information, and to perform these activities securely. Because an extranet allows connectivity between businesses through the Internet, it is an open and flexible platform suitable for B2B. To increase security, many companies replicate the portions of their databases that they are willing to share with their business partners and separate them physically from their regular intranets. However, even separated data need to be secured. (See Chapter 9 for more on EC network security.) The benefits of extranets fall into five categories: virtual private network (VPN) A network that creates tunnels of secured data flows, using cryptography and authorization algorithms, to provide secure transport of private communications over the public Internet. 1. Enhanced communications. The extranet enables improved internal communications; improved business partnership channels; effective marketing, sales, and customer support; and facilitated collaborative activities support. 2. Productivity enhancements. The extranet enables just-in-time information delivery, reduction of information overload, productive collaboration between work groups, and training on demand. 3. Business enhancements. The extranet enables faster time-to-market, potential for simultaneous engineering and collaboration, lower design and production costs, improved client relationships, and creation of new business opportunities.

5 Chapter Five: B2B E-Commerce W5.5 Online File W Cost reduction. The extranet results in fewer errors, improved comparison shopping, reduced travel and meeting time and cost, reduced administrative and operational costs, and elimination of paper publishing costs. 5. Information delivery. The extranet enables low-cost publishing, leveraging of legacy systems, standard delivery systems, ease of maintenance and implementation, and elimination of paper-based publishing and mailing costs. Additional advantages of an extranet include ready access to information, ease of use, freedom of choice, moderate setup cost, simplified workflow, lower training cost, flexibility, more customer loyalty, and better group dynamics. There are also disadvantages, such as difficulty in justifying the investment (measuring benefits and costs), high user expectations, and drain on resources. See Chow (2004) for success factors of using extranets in e-supply chains. REFERENCES FOR ONLINE FILE W5.4 All Business. The Benefits of Extranets allbusiness.com/technology/computer-networking/ html (accessed April 2009). Chow, W. S. An Exploratory Study of the Success Factors for Extranet Adoption in E-Supply Chain. Journal of Global Information Management ( January March 2004). Online File W5.5 From Traditional to Internet-Based EDI The vast majority of B2B transactions are supported by EDI, XML, and extranets. Here we describe EDI and its transition to the Internet platform. Extranets were covered in Online File W5.4. Traditional EDI EDI is a communication standard that enables the electronic transfer of routine documents, such as purchasing orders, between business partners. It formats these documents according to an agreed-upon structure. An EDI implementation is a process in which two or more organizations determine how to work together more effectively through the use of EDI. For other organizations, it is an internal decision spurred by the desire for competitive advantage. EDI is basically a computer-to-computer messaging system with a minimum of human intervention. For a comparison of EDI versus no EDI, see Exhibit W EDI often serves as a catalyst and a stimulus to improve the business processes that flow between organizations. It reduces costs, delays, and errors inherent in a manual document-delivery system: Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions. These include purchase orders, invoices, credit approvals, shipping notices, confirmations, and so on. Data-formatting standards. Because EDI messages are repetitive, it makes sense to use formatting (coding) standards. Standards can shorten the length of the messages and eliminate data entry errors, because data entry occurs only once. EDI deals with standard transactions, whereas is more open. EDI uses a special standard language and is secure, whereas is not. When a user enters data into the EDI system, the data are automatically converted to EDI language.

6 W5.6 Part 3: Business-to-Business E-Commerce Online File W5.5 EXHIBIT W5.5.1 Start Purchase Order Fulfillment with and without EDI PO Delivery Order Placer Accounting/Finance Order Confirmation Bill Delivery Mail Room Sales Without EDI Purchasing Mail Room Payment Delivery Accounting/Finance Shipping Shipping Receiving Product Delivery Order Fulfillment Buyer Seller Standardized PO Form PO PO Computer Converter Generates Standardized PO Form Start Invoice Flash Report With EDI Departmental Buyer EDI Converter Instant Data to Sales Inventory Manufacturing Engineering Receiving Buyer Product Delivery Shipping Seller Order Fulfillment

7 Chapter Five: B2B E-Commerce W5.7 Online File W5.5 If there are missing or incorrect data, the EDI converter offers assistance. EDI fosters collaborative relationships and strategic partnerships. In the United States and Canada, data are formatted according to the ANSI X.12 standard or the UCS code. An international standard developed by the United Nations is called EDIFACT (see bambooweb.com). EDI translators. An EDI translator automatically translates data. The software organizes information into a standard format. EDI has been around for about 30 years in the non-internet environment. To distinguish it from Internet-based EDI, we call EDI on the non-internet platform traditional EDI. How Does EDI Work? The following example illustrates how EDI works in a hospital. Information flows from the hospital s information systems into an EDI station that includes a PC and an EDI translator. From there, the information moves, using a modem if necessary, to a value-added network (VAN). The VAN transfers the formatted information to a vendor(s), where an EDI translator converts it to a desired format. How EDI Cuts Costs of Ordering Supplies An average hospital generates about 15,000 purchase orders each year, at a processing cost of about $70 per order. The Health Industry Business Communication Council estimates that EDI can reduce this cost to $4 per order generating yearly savings of $840,000 per hospital. The required investment ranges between $8,000 and $15,000, which includes purchase of a PC with an EDI translator, a modem, and a link to the mainframe-based information system. The hospital can have two or three ordering points. These are connected to a VAN, which connects the hospital to its suppliers (see Exhibit W5.5.2). The system also can connect to other hospitals or to centralized joint purchasing agencies. EXHIBIT W5.5.2 How EDI Cuts the Cost of Ordering Supplies Hospitals PC/EDI Translator Pharmaceutical Supplier s System Pharmacy: PC/EDI Translator Mainframe Hospital Information System Dietary: PC/EDI Translator Material Management: PC/EDI Translator PC/EDI Modem VAN PC/EDI Translator Materials Supplier s System PC/EDI Translator Dietary Supplier s System Mainframe Other Hospitals PC/EDI Translators PC to Mainframe Links Telephone Lines Mainframe

8 W5.8 Part 3: Business-to-Business E-Commerce Online File W5.5 Applications of Traditional EDI Traditional EDI has changed the business landscape, triggering new definitions of entire industries. It is used extensively by large corporations, sometimes in a global network, such as the one operated by General Electric Information System (which has over 100,000 corporate users). Well-known retailers such as Home Depot and Walmart would operate very differently without EDI, because it is an integral and essential element of their business strategies. Thousands of global manufacturers, including Procter & Gamble, Levi Strauss, Toyota, and Unilever, have used EDI to redefine relationships with their customers through such practices as quick-response retailing and just-in-time (JIT) manufacturing. These highly visible, high-impact applications of EDI by large companies have been extremely successful. The benefits of EDI are listed next. Benefits of EDI EDI enables companies to send and receive large amounts of routine transaction information quickly around the globe. Computer-to-computer data transfer reduces the number of errors. Information can flow among several trading partners consistently and freely. Companies can access partners databases to retrieve and store standard transactions. EDI fosters true (and strategic) partnership relationships because it involves a commitment to a long-term investment and the refinement of the system over time. EDI creates a complete paperless transaction processing system (TPS) environment, saving money and increasing efficiency. Payment collection can be shortened by several weeks. Data may be entered offline, in batch mode, without tying up ports to the mainframe. When an EDI document is received, the data may be used immediately. Sales information is delivered to manufacturers, shippers, and warehouses almost in real time. EDI can save companies a considerable amount of money. Limitations of Traditional EDI However, despite the tremendous impact of traditional EDI among industry leaders, the set of adopters represented only a small fraction of potential EDI users. In the United States, where several million businesses participate in commerce every day, fewer than 100,000 companies have adopted traditional EDI. Furthermore, most of these companies have had only a small number of their business partners on EDI, mainly due to its high cost. Therefore, in reality, few businesses have benefited from EDI. The major factors that held back more universal implementation of traditional EDI include the following: Significant initial investment is needed, and ongoing operating costs are high. Business processes must be restructured to fit EDI requirements. A long start-up period is needed. EDI requires use of expensive private VANs. EDI has a high operating cost. Multiple EDI standards exist, so one company may have to use several standards in order to communicate with different business partners. The system is difficult to use. A converter is required to translate business transactions to EDI code. The system is inflexible; it is difficult to make quick changes, such as adding business partners. These factors suggest that traditional EDI relying on formal transaction sets, translation software, and VANs is not suitable as a long-term solution for most corporations. Therefore, a better infrastructure was needed; Internet-based EDI is such an infrastructure. For details, see Harris and Chen (2006).

9 Chapter Five: B2B E-Commerce W5.9 Online File W5.5 Internet-Based EDI Internet-based (or Web-based) EDI is becoming very popular. Let s see why this is the case and review the various types of Web-based EDI. Why Internet-Based EDI? When considered as a channel for EDI, the Internet appears to be the most feasible alternative for putting online B2B trading within reach of virtually any organization, large or small. Firms should use Internet-based EDI for several reasons: The Internet is a publicly accessible network with few geographical constraints. Its largest attribute, large-scale connectivity (without the need for any special company networking architecture), is a seedbed for growth of a vast range of business applications. The Internet s global network connections offer the potential to reach the widest possible number of trading partners of any viable alternative currently available. Using the Internet instead of a VAN can cut communication costs by over 50 percent. Using the Internet to exchange EDI transactions is consistent with the growing interest in delivering an ever-increasing variety of products and services electronically, particularly via the Web. Internet-based EDI can complement or replace many current EDI applications. Internet tools such as browsers and search engines are very user-friendly, and most employees today know how to use them. Internet-based EDI has several functionalities not provided by traditional EDI, such as collaboration, workflow, and search engine capabilities. Types of Internet-Based EDI The Internet can support EDI in a variety of ways: Internet can be used to transport EDI messages in place of a VAN. To this end, standards for encapsulating the messages within Secure Internet Mail Extension (S/MIME) have been established. A company can create an extranet that enables its trading partners to enter information into a Web form, the fields of which correspond to the fields in an EDI message or document. Companies can use a Web-based EDI hosting service in much the same way that companies rely on third parties to host their EC sites. Netscape Enterprise is an example of the type of Web-based EDI software that enables a company to provide its own EDI services over the Internet. Harbinger Express is an example of a company that provides third-party hosting services. Internet-based EDI is frequently XML based to ease integration among business partners. The Prospects of Internet-Based EDI Companies that used traditional EDI in the past have had a positive response to Internet-based EDI. With traditional EDI, companies have to pay for network transport, translation, and routing of EDI messages into their legacy processing systems. The Internet simply serves as a cheaper alternative transport mechanism. For a discussion, see Meadors (2005). The combination of the Web, XML, and Java makes EDI worthwhile even for small, infrequent transactions. Whereas EDI is not interactive, the Web and Java were designed specifically for interactivity as well as ease of use. The following examples demonstrate the benefits of Internet-based EDI: CompuCom Systems was averaging 5,000 transactions per month with traditional EDI. In just a short time after the transition to Web-based EDI, the company was able to average 35,000 transactions. The system helped the company to grow rapidly.

10 W5.10 Part 3: Business-to-Business E-Commerce Online File W5.5 Atkins Carlyle Corp., which buys from 6,000 suppliers and has 12,000 customers in Australia, is a wholesaler of industrial, electrical, and automotive parts. The large suppliers were using three different EDI platforms. By moving to an Internetbased EDI, the company is able to collaborate with many more business partners, reducing transaction costs by about $2 per message. Procter & Gamble replaced a traditional EDI system that had 4,000 business partners with an Internet-based system that has tens of thousands of suppliers. Note that many companies no longer refer to their collaborative systems as EDI. However, the properties of EDI are embedded into new e-commerce initiatives such as collaborative commerce and electronic exchanges. REFERENCES FOR ONLINE FILE W5.5 Harris, A. L., and C. Chen. Traditional and Internet EDI Adoption Barriers, in Khosrow-Pour (2006). Khosrow-Pour, M. (Ed.). Encyclopedia of E-Commerce, E-Government, and Mobile Commerce, Hershey, PA: Idea Group Reference, Meadors, K. Secure Electronic Data Interchange over the Internet. IEEE Xplore, May/June ONLINE FILE W5.6 Application Case CISCO CONNECTION ONLINE Customer Service Cisco began providing electronic support in 1991 using value-added networks (VANs). The first applications offered were software downloads, defects diagnoses, and technical advice. In spring 1994, Cisco moved its system to the Web and named it Cisco Connection Online (CCO). By 2004, Cisco s customers and reseller partners were logging onto Cisco s Web site over 2 million times a month to receive technical assistance, place and check orders, or download software. The online service has been so well received that nearly 85 percent of all customer service inquiries and 95 percent of software updates are delivered online. The service is delivered globally in 16 languages. CCO is considered a model for B2B success, and several books have been written about it. Online Ordering by Customers Virtually all of Cisco s products are made to order. Before CCO, ordering a product was a lengthy, complicated, and error-prone process because it was done by fax or by snail mail. Cisco began deploying Web-based commerce tools in July 1995, and within a year its Internet Product Center allowed users to configure and purchase any Cisco product over the Web. Today, a business customer s engineer can sit down at a PC, configure a product, and find out immediately if there are any errors in the configuration (some feedback is given by intelligent agents). By providing online pricing and configuration tools to customers, 99 percent of orders are now placed through CCO, saving time for both Cisco and its customers. In the first five months of online ordering operations in 1996, Cisco booked over $100 million in online sales. This figure grew to $4 billion in 1998, to over $8 billion in 2002, and to about $12 billion in 2005 (Cisco Annual Report 2005). (Note: Data for Cisco s online and offline sales are not separated after 2005.) Tracking Order Status Each month Cisco used to receive over 150,000 order-status inquiries such as, When will my order be ready? How should the order be classified for customs? Is the product eligible for NAFTA agreement? What export control issues

11 Chapter Five: B2B E-Commerce W5.11 ONLINE FILE W5.6 apply? Cisco provides self-tracking and FAQ tools so that customers can find the answers to many of their questions by themselves. In addition, the company s primary domestic and international freight forwarders update Cisco s database electronically about the status of each shipment. CCO can record the shipping date, the method of shipment, and the current location of each product. All new information is made available to customers immediately. As soon as an order ships, Cisco notifies the customer via . Benefits Cisco reaps many benefits from the CCO system. The most important benefits include: Reduced operating costs for order taking. By taking its order process online in 1998, Cisco has saved $363 million per year, or approximately 17.5 percent of its total operating costs. This is due primarily to increased productivity of the employees who take and process orders. Improved quality. The system facilitates the Six Sigma mission of Cisco. Enhanced technical support and customer service. With more than 85 percent of its technical support and customer service calls handled online, Cisco s technical support productivity has increased by 250 percent per year. Reduced technical support staff cost. Online technical support has reduced technical support staff costs by roughly $125 million each year. Reduced software distribution costs. Customers download new software releases directly from Cisco s site, saving the company $180 million in distribution, packaging, and duplicating costs each year. Having product and pricing information on the Web and Web-based CD-ROMs saves Cisco an additional $50 million annually in printing and distributing catalogs and marketing materials to customers. Faster service. Lead times were reduced from 4 to 10 days to 2 to 3 days. The CCO system also benefits customers. Cisco customers can configure orders more quickly, immediately determine costs, and collaborate much more rapidly and effectively with Cisco s staff. Also, customer service and technical support are faster. In 2006, Cisco moved to selling its hardware (routers and switches and VoIP) and the software that powers them separately. This unbundling gives customers more flexibility (see Hoover 2006). Questions 1. List the capabilities of the Cisco Online system. 2. What are the benefits of the system to Cisco? 3. What are the benefits to Cisco s customers? REFERENCES FOR ONLINE FILE W5.6 Cisco Annual Report. Cisco Systems, cisco.com/web/ about/ac49/ac20/ac19/ar2005/index.html (accessed May 2009). Hoover, J. N. The Cisco Premium. InformationWeek, July 31 August 7, ONLINE FILE W5.7 Application Case BOEING S PART MARKETPLACE Boeing (boeing.com) is the world s largest maker of airplanes for commercial and military customers. It also plays the role of intermediary in supplying replacement and maintenance parts to airlines. Unlike other online B2B intermediaries, revenue from its intermediary activities may be a minor concern to Boeing, which makes most of its revenue from selling airplanes. The major goal of Boeing s intermediary parts market, called Part Analysis and Requirement Tracking (PART), is supporting customers maintenance needs as a customer service. The objective of PART is to link airlines that need maintenance parts with suppliers who are producing the

12 W5.12 Part 3: Business-to-Business E-Commerce ONLINE FILE W5.7 parts for Boeing aircraft (see boeing.com/commercial/ spares/part_page.html). Boeing s online strategy is to provide a single point of online access through which airlines (the buyers of Boeing s aircraft) and the maintenance and parts providers (Boeing s suppliers) can access data about the parts they need. These data might come from the airframe builder, the component supplier, the engine manufacturer, or the airline itself. Thus, Boeing is acting as an intermediary between the airlines and the parts suppliers. With data from 300 key suppliers of Boeing s airplane parts, Boeing s goal is to provide its customers with onestop shopping for online maintenance information and ordering. The Spare Parts Business Using Traditional EDI Ordering spare parts had been a multistep process for many of Boeing s customers. For example, an airline s mechanic informed the purchasing department of his company that a specific part was needed; the purchasing department approved the purchase order and sent it to Boeing by phone or fax. The mechanic did not need to know who produced the part because the aircraft was purchased from Boeing as one body. However, Boeing had to find out who produced the part and then ask the producer to deliver the part to the customer (unless Boeing happened to keep an inventory of that part). The largest airlines began to streamline the ordering process about 20 years ago. Because of the volume and regularity of their orders, they established EDI connections with Boeing over VANs. Not all airlines were quick to follow suit, however. It took until 1992 to induce 10 percent of the largest customers, representing 60 percent of the volume, to order through EDI. The numbers did not change much until 1996 due to the cost and complexity of VANbased EDI. Debut of PART on the Internet Boeing viewed the Internet as an opportunity to encourage more of its customers to order parts electronically. With the initial investment now limited to a standard PC and basic Internet access, even its smallest customers can now participate in PART. Because of its interactive capabilities, many customer service functions that were handled over the telephone are now handled over the Internet. In November 1996, Boeing introduced its PART page on the Internet, giving its customers around the world the ability to check parts availability and pricing, order parts, and track order status, all online. Less than a year later, about 50 percent of Boeing s customers used PART for parts orders and customer service inquiries. In its first year of operation, the Boeing PART portal handled over half a million inquiries and transactions from customers around the world. Boeing s spare parts business processed about 20 percent more shipments per month in 1997 than it did in 1996 with the same number of data entry people. In addition, as many as 600 phone calls a day to customer service staff were eliminated because customers had access to information about pricing, availability, and order status online. The use of PART online resulted in fewer parts being returned due to administrative errors. Furthermore, the service may encourage airlines to buy Boeing aircraft the next time they make an aircraft purchase. (For a demo of PART, visit boeing.com.) As a result of PART s success, Boeing started a complementary EC initiative called Boeing On-Line Data (BOLD), which enables mechanics and technicians at the airport to access the technical manuals they need for repairs. These manuals are now available in digital form, and mechanics and technicians can access them via wire line or wireless devices. In May 2000, Boeing also launched a new e-business site for airline customers based on PART and BOLD. By 2009, Boeing s PART Web page included up-to-date parts information, such as availability, price, and whether a part is interchangeable with another part. Orders are acknowledged and processed in seconds. Orders can be placed or revised on the site in real time. Multiple orders can be analyzed in order to simplify the procurement process. Security safeguards allow specification of the level of personnel authorized to place orders. Other options available include ordering as many as 25 items at a time; getting a copy of the invoice directly from the PART page; automatically requesting a quote for parts that are not priced that is returned by ; and, obtaining customs invoice/packing sheet for international shipping. Questions 1. What motivated Boeing to create PART? 2. What motivated the move from EDI to the Internet? 3. List and briefly discuss the benefits of PART to Boeing. 4. List and briefly discuss the benefits of PART to Boeing s customers.

13 REFERENCES FOR ONLINE FILE W5.7 Boeing Launches New E-Business Web Site. Aerotech News and Review Journal of Aerospace and Defense Industry News (May 12, 2000). Chapter Five: B2B E-Commerce W5.13 Boeing. Boeing Part Page: Fast, Easy Access to the Part You Want and Need boeing.com/ commercial/aviationservices/brochures/boeing_ Part_Page.pdf (accessed May 2009). ONLINE FILE W5.8 Application Case HOW THE STATE OF PENNSYLVANIA SELLS SURPLUS EQUIPMENT For many years, the Pennsylvania Department of Transportation (DOT) used a traditional offline auction process. As of October 2003, the state is holding online auctions to sell its surplus heavy equipment. The old, live in-person auction system generated about $5 million a year. Using the Internet, the DOT is generating at least a 20 percent increase in revenue. The Commonwealth of Pennsylvania conducted its initial online sale of surplus DOT items in October The sale consisted of 77 items (including 37 dump trucks). Onsite inspection was available twice during the two-week bidding period. The online sale allowed the Commonwealth of Pennsylvania to obtain an average price increase of 20 percent, while reducing labor costs related to holding a traditional on-site sale. On high-value specialty items (i.e., a bridge inspection crane and a satellite van), results exceeded the estimated sale prices by over 200 percent. The auction was conducted by AssetAuctions (assetauctions.com). The results of the auction were as follows: Total sales: $635, Half of the bidding activity occurred in the final two days. Every lot received multiple bids. Overtime bidding occurred in 39 lots. 174 bidders from 19 states and Mexico made about 1,500 bids in five days. 47 different buyers participated. The Commonwealth of Pennsylvania now sells surplus equipment and properties using both AssetAuctions and ebay. Questions 1. Why is heavy equipment amenable to such auctions? 2. Why did the state generate 20 percent more in revenues with the online auction? 3. Why do you need an intermediary to conduct such an auction? 4. Comment on the number of bidders and bids with an online auction as compared to an offline auction. REFERENCES FOR ONLINE FILE W5.8 asset-auctions.com (accessed July 2009). Commonwealth of Pennsylvania. Pennsylvania s Surplus Property Programs portal.state.pa.us/portal/ server.pt?open=512&objid=1393&&sortorder=1 6&level=2&parentid=1231&css=L2&mode=2 (accessed July 2009).

14 W5.14 Part 3: Business-to-Business E-Commerce Online File W5.9 The E-Procurement Process: A Buyer s View EXHIBIT W5.9.1 Search for Vendors and Products E-catalogs, brochures, conventions, exhibits, telephone calls, visits. Initiate a Purchase Order (PO) Fill in electronic form or trigger ready order. Qualify Vendors Which vendors can we do business with? Research firms for financial stability and credit history. Select a Market Mechanism Private, public, auctions (tendering) exchange, bartering (Tendering system has a special process.) Arrange a Pickup or Receive Shipment Check shipping documents, billing, quality. Compare and Negotiate Compare price, financing, delivery, quality, etc. Select a vendor. Make a Purchase Arrangement (Individual or committee) Have a contract. Arrange payment. Pre-Purchase Activities Make Payments Approve payment. Arrange money transfer. After-Purchase Activities

15 Chapter Five: B2B E-Commerce W5.15 Online File W5.10 Implementing E-Procurement E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance to change is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at a reasonable cost. For details, see en.wikipedia.org/wiki/e-procurement. MROs often are the initial target for e-procurement. However, improvements can be made in the purchasing of direct materials as well. All existing manual processes of requisition creation, requests for quotation, invitation to tender, purchase order issuance, receiving goods, and making payments can be streamlined and automated. However, to most effectively implement such automated support, the people involved in procurement must collaborate with the suppliers along the supply chain, as we will describe in Chapter 6. Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part is implementing it. The components of e-procurement systems are shown in Exhibit W For a model that simplifies the procurement process by performing tasks electronically, see Podlogar (2006). EXHIBIT W Module Potential E-Procurement Components Catalog Management Module Facilitates the creation of products, subassemblies, and components in a hierarchical manner. Components Catalog manager Catalog exchanger Approved vendor list (AVL) editor Collaborative Planning Module Supports collaborative planning between buyers and suppliers. Online Purchase Module Supports both systematic and spot procurement for direct and indirect materials and for contracts (for both goods and services). Request for Quote (RFQ) Request for Proposal (RFP) Demand forecaster Contract manager Inventory manager Information flow controller Real-time integration to project management, change management, and financials Management of compliance with quality and safety standards Purchase via contracts Purchase from catalog Reverse auction service for direct/indirect materials Reverse auction service for contracts Auction service Purchase-Order Handling Module Enables buyers to place purchase orders via on/off item master, reverse auction, contract purchasing, and spot market requisition. Purchase order manager Demand aggregator Consignment manager JIT order manager

16 W5.16 Part 3: Business-to-Business E-Commerce Online File W5.10 EXHIBIT W Document Service Module Facilitates a broad range of services for procurement documentation such as RFQ, RFP, PO, goods receipt, and accounts payable. Historical Performance Service Module Provides easy access to historical statistics of all transactions. Information Service Module Provides a unified information and message service that allows users to receive/send s and view status of procurement activities. System Administration Module Provides tools that enable the company to control procurement activities. Document indexing SML exchanger Document version controller Periodical reports Customized reports Statistical analysis Message/task center Status of procurement operations Customized exceptional alerts Smart search engine Online negotiation/discussion service Company master data organizer Product group builder Workflow designer Authorization matrix Look and feel designer User/department profile organizer Sources: Compiled from e-jing.net and oracle.com (both accessed May 2009). The following are some of the major implementation issues that companies must consider when planning e-procurement initiatives: Fitting e-procurement into the company s EC strategy. For example, suppose the strategy is outsourcing. In this case, e-procurement can be done in an exchange, or the customer can buy at the sellers Web sites. Reviewing and changing the procurement process itself. E-procurement may affect the number of purchasing agents, where they are located, and how purchases are approved. The degree of purchasing centralization also may be affected. Providing interfaces between e-procurement and integrated enterprise-wide information systems, such as ERP or supply chain management. If the company does not have such systems, it may be necessary to do some restructuring before moving to e-procurement. Coordinating the buyer s information system with that of the sellers. Sellers have many potential buyers. For this reason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an integration-oriented procurement system for its buyers. The SKF information system is designed to make it easier for the procurement systems of others (notably the distributors in other countries) that buy the company s bearings and seals

17 Chapter Five: B2B E-Commerce W5.17 Online File W5.10 to interface with the SKF system. The SKF system allows distributors and large buyers to gain real-time technical information on the products, as well as details on product availability, delivery times, and commercial terms and conditions. Consolidating the number of regular suppliers and integrating with their information systems and, if possible, with their business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolved and will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the company to get a quantity discount. Collaboration with each supplier also will be enhanced. E-Sourcing e-sourcing The process and tools that electronically enable any activity in the sourcing process, such as quotation/tender submittance and response, e-auctions, online negotiations, and spending analyses. When implementing e-procurement, companies also should evaluate e-sourcing, the processes and tools that electronically enable any activity in the procurement process, such as quotation/tender requests and responses, e-auctions, online negotiations, and spending analyses (see ariba.com/solutions/sourcing.cfm and Johnson and Klassen 2005). E-sourcing is the automation of strategic sourcing. Strategic sourcing is the process of identifying opportunities, evaluating potential sources, negotiating contracts, and managing supplier relationships to achieve corporate goals, such as cost reductions and increased quality and service as well as reductions in sourcing cycle times. E-sourcing is about removing unnecessary cost (i.e., waste and inefficiency) from the supply chain and providing competitive advantage (Minihan 2009). Strategic sourcing requires a holistic process that automates the entire sourcing process, including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order execution. The promise of strategic sourcing is in reducing total acquisition costs while increasing value. A fundamental shortcoming of sourcing tools today is their inability to allow the creation of complex RFQs that allow for a variety of bid structures that exploit complementarities and economies of scale in suppliers cost structures. E-sourcing attempts to improve strategic sourcing by making it more effective and efficient. For example, Moai Technologies (moai.com) provides the following e-sourcing solutions: Just-in-Time Sourcing (JITS). Moai s JITS integrates strategic consulting services with licensed software products. The software directs customers through the e-sourcing process, including negotiating with vendors and securing reliable suppliers, thereby lowering sourcing costs. According to Moai (2006), CompleteSource provides customized low-cost solutions for a flat fee. Those who are ready to take complete control of their sourcing process will benefit most from: High ROI fixed subscription cost with huge savings Maximum customization can be installed into unique workflows, applications, and processes Maximum control Behind the firewall solution provides flexibility and control in administering, scheduling, branding, and process integration Strategic Consulting Services. RapidSource, Moai s strategic consulting program, promotes testing and validation of e-sourcing to those new to the concept. With this guidance, users are guaranteed a return on investment in the program. Hosted Sourcing Software. Delays, IT complexities, and costs associated with in-house deployments are eliminated with Moai s hosted services.

18 W5.18 Part 3: Business-to-Business E-Commerce REFERENCES FOR ONLINE FILE W5.10 e-jing. E-Procurement. e-jing.net/en/solutions/ e-procurement.htm (no longer available online). Johnson, P. F., and R. D. Klassen. E-Procurement. MIT Sloan Management Review (Winter 2005). Minihan, T. The Truth About E-Sourcing. Supply Excellence, March 31, supplyexcellence.com/ blog/2009/03/31/truth-about-e-sourcing (accessed April 2009). Moai. Solutions Overview. moai.com/solutions/ solutions_overview.asp (accessed April 2009). Podlogar, M. Simplifying the Procurement Process by Using E-Commerce. International Journal of Internet and Enterprise Management, 4, no. 2 (2006). Zhao, F. Maximize Business Profits Through E-Partnership. Hershey, PA: Idea Group Inc., ONLINE FILE W5.11 Application Case THE PROCUREMENT REVOLUTION AT GENERAL ELECTRIC General Electric s material costs increased 16 percent between 1982 and 1992 (Trading Process Network 1999). During those same years, GE s product prices remained flat or for some products even declined. In response to the cost increases, GE began an all-out effort to improve its purchasing system. The company analyzed its procurement process and discovered that its purchasing was inefficient, involved too many transactions, and did not leverage GE s large volumes to get the best prices. In addition, more than one-quarter of its 1.25 million invoices per year had to be reworked because the purchase orders, receipts, and invoices did not match. TPN at GE s Lighting Division Of a number of steps GE took to improve its procurement, one of the most innovative was the introduction of an electronic tendering system that started in GE s Lighting Division. Factories at GE Lighting used to send hundreds of RFQs to the corporate sourcing department each day, many for low-value machine parts. For each requisitions, the accompanying blueprints had to be requested from storage, retrieved from the vault, transported to the processing site, photocopied, folded, attached to paper requisition forms with quote sheets, stuffed into envelopes, and mailed out to bidders. This process took at least seven days and was so complex and time-consuming that the sourcing department normally sent out bid packages for each part to only two or three suppliers. In 1996, GE Lighting piloted the company s first e-procurement system, called the Trading 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. Within two hours from the time the corporate sourcing department started the process, suppliers were notified of incoming RFQs by , fax, or EDI. They were given seven days to prepare a bid and return it electronically to GE Lighting. Then the bid was transferred internally, over the corporate intranet, to the appropriate evaluators, and a contract could be awarded that same day. Benefits of TPN. As a result of implementing TPN, GE realized a number of benefits: Administrative labor involved in the procurement process declined by 30 percent. At the same time, material costs declined 5 to 50 percent due to the procurement department s ability to reach a wider base of competing suppliers online. GE was able to cut the number of staff involved in the procurement process by 50 percent and redeploy the unnecessary workers into other jobs. As a result, the sourcing department had at least 6 to 8 free days a month to concentrate on strategic activities rather than on paperwork, photocopying, and envelope stuffing. It used to take 18 to 23 days to identify suppliers, prepare a request for bid, negotiate a price, and award the contract to a supplier. After implementation of the TPN, it took9to11days.

19 Chapter Five: B2B E-Commerce W5.19 ONLINE FILE W5.11 With the transaction handled electronically from beginning to end, invoices could be automatically reconciled with purchase orders, reflecting any modifications that happened along the way. GE procurement departments around the world were able to share information about their best suppliers. In February 1997 alone, GE Lighting found seven new suppliers through the Internet, including one that charged 20 percent less than the second-lowest bid. By 2001, 12 of GE s divisions were purchasing their nonproduction and MRO materials over the Internet for an annual total of $6 billion (35 percent of their total procurement). General Electric estimates that streamlining these purchases alone has saved the company $500 to $700 million annually. The Inception of GXS Due to the success of TPN, GE expanded the system, making it a public posting place for other buyers. In 2001, TPN was acquired by GXS Express Marketplaces, which was operated by GE Global Exchange Services (gxs.com). GXS now operates as a public marketplace on which many other companies place RFQs. GXS has over 30,000 companies including 70 percent of Fortune 500 companies, trading partners in 50 countries, and in 2008 it processed over 4 billion transactions. It is one of the most profitable dotcom companies. In June 2002, it was sold to Francisco Partners under whose control it continues to operate under the name GXS (gxs.com). GXS also assumed the EDI services of GE Information Services. Benefits of GXS. Suppliers in the GXS system can gain instant access to global buyers (including GE) with billions of dollars in purchasing power. In addition, they may dramatically improve the productivity of their own bidding and sales activities. Other benefits are increased sales volume, expanded market reach and ability to find new buyers, lower administration costs for sales and marketing activities, shorter requisition cycle time, improved sales staff productivity, and a streamlined bidding process. General Electric reports that the benefits of GXS extend beyond its own walls. As an example, computer reseller Hartford Computer Group reports that since joining GXS, it has increased its exposure to different GE business units so that its business with GE has grown by over 250 percent. In addition, GXS has introduced Hartford Computer Group to other potential customers. More generally, the benefits of GXS to purchasing departments include the following: streamlining sourcing processes with current business partners; finding and building partnerships with new suppliers worldwide; rapidly distributing information, specifications, and electronic drawings to multiple suppliers simultaneously; and cutting sourcing cycle times and reducing costs for sourced goods. Deployment Strategies and Challenges This case demonstrates two deployment strategies for EC initiatives. The first is to start EC in one division (GE started in its Lighting Division) and slowly go to all divisions. The second is to also use the site as a public bidding marketplace to generate commission income. Even though GE was successful with its e-procurement system, it could not reach its original plan of 100 percent e-procurement due to connectivity difficulties with SMEs. By 2001, of its 30,000 suppliers, roughly 25 percent (7,500 suppliers) were performing the critical procurement missions on the Web. Another 7,500 or so were connected to GE using the dated EDI networks. That left another 15,000 suppliers that relied mainly on manual processes to conduct business with GE (Moozakis 2001). (Connecting with SMEs is a common challenge in B2B implementation.) Questions 1. List and briefly discuss the benefits of GXS to GE. 2. List and briefly discuss the benefits of GXS to GE s customers. 3. Why did GE sell the system? REFERENCES FOR ONLINE FILE W5.11 gxs.com (accessed May 2009). Moozakis, C. GE Scales Back. Internet Week, May 10, orafaq.com/maillist/oracle-l/2001/05/11/1056. htm (accessed January 2008). Trading Process Network. Extending the Enterprise: TPN Post Case Study GE Lighting. Trading Process Network, tpn.geis.com/tpn/resource _center/casestud.html (no longer available online).

20 W5.20 Part 3: Business-to-Business E-Commerce ONLINE FILE W5.12 Application Case CHEMCONNECT: THE WORLD COMMODITY CHEMICAL EXCHANGE Today, buyers and sellers of chemicals and plastics can meet electronically in a large Internet public marketplace (founded in 1995) called ChemConnect (chemconnect.com), which was purchased by Intercontinental Exchange (ICE) in July The international community of members includes more than 9,000 companies from over 150 countries worldwide. Global chemical industry leaders, such as BP, Dow Chemical, BASF, Hyundai, Sumitomo, and many more, make transactions over ChemConnect every day in real time. They save on transaction costs, reduce cycle time, and find new markets and trading partners around the globe. It was the first B2B e-market in the chemical industry. ChemConnect provides a link to the Global Exchange Services (GXS, gxs.com) trading marketplace, which manages a network of about 150,000 trading partners worldwide including 70 percent of Fortune 500 companies. Members are producers, consumers, distributors, traders, and intermediaries involved in the chemical industry. ChemConnect offers its members a Trading Center with three trading places: 1. Marketplace for buyers. In this marketplace, buyers can find suppliers all over the world. They can post RFQs with reverse auctions, negotiate, and more. 2. Marketplace for sellers. This marketplace exposes sellers to many potential new customers. It provides automated tools for quick liquidation. More than 1,000 products are negotiated in auctions. 3. Commodity markets platform. This platform provides a powerful connection to the global spot marketplaces for chemicals, plastics, and related materials. ChemConnect members can use the Trading Center to streamline sales and sourcing processes by automating requests for quotes, proposals, and new suppliers. The center enables a member to negotiate more efficiently with existing business partners as well as with new companies the member may invite to the table all in complete privacy. The Trading Center is a highly effective way to get the best prices and terms available on the worldwide market. In addition, members can access a database containing more than 63,000 chemicals and plastics virtually any product members are ever likely to look for. In addition to trading, the exchange provides back-end fulfillment services (e.g., payments, delivery). All three trading places provide up-to-the-minute market information (mostly financial and news, via bloomberg.com) that can be translated into more than 30 different languages. Business partners provide several support services. For example, Citigroup and ChemConnect jointly offer several financial services for exchange members. ChemConnect also offers systems for connecting companies back-end systems with their business partners and with ChemConnect itself. The overall benefits of ChemConnect to its members are more efficient business processes, lower overall transaction costs, and time saved during negotiation and bidding. For example, conducting a reverse auction in a trading room enables buyers to save up to 15 percent of a product s cost in just 30 minutes. The same process using manual bidding methods would take several weeks or months. ChemConnect continues to grow, adding members and increasing its trading volume each year. One of the company s success factors is that 40 large chemical companies hold about one-third of the company s stock. Another factor is the fact that about 44 percent of the industry uses the exchange on a regular basis. ChemConnect has expanded its coverage to become a more diversified company, offering midstream energy, such as ethanol, natural gas, and other commodities. It has also added negotiation solutions, collaboration hubs, data integration services, price discovery features, and more. Also, its community has been expanded. Participant companies include most large producers, consumers, distributors, traders, and transportation and logistics companies within each product class in addition to banks, hedge funds, and other interested financial institutions. Finally, it offers an infrastructure for negotiation (see chemconnect.com/negotiation.html). Questions 1. List the benefits of ChemConnect to trading companies. 2. Describe the different trading platforms. 3. List some of the capabilities of the system.