BUYING FROM VIRTUAL SELLER BIGBOXX.COM

Transcription

1 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 1 ONLINE FILE W5.1 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. 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 Internet-based direct debit, by electronic bill presentation and payment, or by Internet banking. Using its own trucks and warehouses, deliveries scheduled online are made within 24 hours. 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 central-approval 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. 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 W5.1 bigboxx.com (accessed November 2006). Chan, W. C., T. C. Chu, A. R. Gold, and G. Leibowitz. Thinking Out of the Box. The McKinsey Quarterly no. 2 (2001).

2 2 Part 3: Business-to-Business E-Commerce ONLINE FILE W5.2 BOEING S PARTS 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 (Part Analysis and Requirement Tracking), 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 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 one-stop 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 VAN-based 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.)

3 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 3 As a result of PART s success, Boeing started a complementary EC initiative called Boeing OnLine 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 wireline or wireless devices. In May 2000, Boeing also launched a new e-business site for airline customers based on PART and BOLD. REFERENCES FOR ONLINE FILE W5.2 Boeing Launches New E-Business Web Site. Aerotech News and Review Journal of Aerospace and Defense Industry News, May 12, Boeing. Portal Power: E-Business at Boeing Gaining Velocity. August 29, boeing.com/commercial/ news/feature/ebiz.html (accessed November 2006). ONLINE FILE W5.3 MARSHALL INDUSTRIES Marshall Industries, now part of Avnet Electronics Marketing (avnet.com), is a large distributor of electronics components. It buys electronics components from manufacturers and sells them to businesses. Prior to its merger with Avnet in 1999, Marshall served over 30,000 business customers, many of which were small in size. Marshall distributed over 130,000 different products worldwide. Avnet was a competitor. Now, together, they have sales of over $10 billion a year. The electronics industry is very competitive. Distributors compete against each other and against direct marketing by the manufacturers, and they may face disintermediation. Thus, providing value-added services is key to a distributor s survival. Marshall added value to its customers through IT support. The company was known for its innovative use of information technologies and the Web (e.g., see Wilson 1998): It won a first prize in the 1997 SIM International awards competition (simnet.org) for the best paper describing how the company uses IT and EC (El-Sawy et al. 1999). In 1999, Marshall was the first ever to use the XML-based interoperable solution for B2B integration. (XML stands for extensible Markup Language, a standard for defining data elements on a Web page and B2B documents.) Marshall pioneered the use of the Internet and IT applications with a view to reengineer its business and create new competitive strengths. Its major Web-based initiatives, which were interconnected, are listed below. Most of these initiatives still remain in the systems offered by Avnet. In addition to the physical distribution of components, distributors such as Marshall (and now Avnet) have increasingly taken on value-added tasks such as technical support, logistics, payment processing and accounts receivable, credit services, logistics, and more. The semiconductor industry, for example, is cyclical, causing major delivery and inventory problems that distributors seek to solve. In addition, large customers are global and require global sourcing. Time-to-market competition and customization at the customer end require a fast and flexible response from distributors. Just-in-time and supplier-managed inventories are increasingly required from distributors. These demands require tight integration of information and provision of value-added services along the value chain. Marshall (and now Avnet) met these demands in its e-commerce initiative by providing value-added services that enabled the company to survive as an intermediary. MARSHALL S SURVIVAL STRATEGY Marshall s use of e-commerce was combined with other innovations and with business process reengineering (BPR), the introduction of a fundamental change in the way a company does business. For example, Marshall made various business process changes: The company

4 4 Part 3: Business-to-Business E-Commerce Marshall Industries EC Initiatives Initiative MarshallNet Marshall on the Internet (portal) Strategic European Internet Electronic Design Center PartnerNet NetSeminar Education and News Portal Description An intranet that supports salespeople in the field via wireless devices and portable PCs. Offers real-time access to the corporate database, DSS applications, and workflow and collaboration software. A B2B portal for customers that offers information, ordering, and tracking (using UPS software) capabilities. Established discussion group, chat room, connection to call centers. Offers special pages for value-added resellers and troubleshooting capabilities. A strategic partner in Europe that offers MarshallNet in 17 languages, as well as additional local information. Includes an online configuration tool. Provides technical specifications. Offers simulation capabilities for making virtual components. The company can produce sample products designed by customers. Customized Web pages for major customers and suppliers. Offers access to the company s intranet. Enables electronic payments and access to historical data and records. Also offers planning tools online. An online training tool; brings suppliers and customers together for live interactions. Offers education, news, and entertainment services, including consulting, sales training, and interactive public product announcements. moved to a team-based organization with a flat hierarchy, decentralizing decision making; provided continuous improvement innovations jointly with its business partners; changed the salesperson s compensation from commission-based to profit sharing; promoted the use of CRM; provided new Web-based services to create value between suppliers and customers; and changed the internal organizational structure and procedures to fully support e-commerce initiatives. Marshall was both very successful and profitable. Its EC initiatives are now practiced at Avnet Electronics Marketing as well. For additional information, see Timmers (1999), El-Sawy et al. (1999), and avnet.com (2003). REFERENCES FOR ONLINE FILE W5.3 Avnet. Avnet Enterprise Solutions Storage Initiative Delivers Coast-to-Coast Expertise. March 24, highbeam.com/doc/1g html (accessed November 2006). El-Sawy, O., et al. Intensive Value Innovation in the Electronic Economy: Insight from Marshall Industries. MIS Quarterly (September 1999). Timmers, P. Electronic Commerce: Strategies and Models for B2B Trading. Chichester, UK: John Wiley & Sons, Wilson, T. Marshall Industries: Wholesale Shift to the Web. Internet Week, July 20, 1998.

5 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 5 ONLINE FILE W5.4 Potential E-Procurement Components Module Catalog Management Module Facilitates the creation of products, subassemblies, and components in a hierarchical manner. 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). Purchase-Order Handling Module Enables buyers to place purchase orders via on/off item master, reverse auction, contract purchasing, and spot market requisition. 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. Components Catalog manager Catalog exchanger AVL (Approved Vendor List) editor Request for Quote (RFQ) Request for Proposal (RFP) Demand forecaster Contract manager Inventory manager Information flow controller Purchase via contracts Purchase from catalog Reverse auction service for direct/indirect materials Reverse auction service for contracts Auction service Purchase order manager Demand aggregator Consignment manager Just-in-time order manager 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 Source: Compiled from e-jing E-Procurement, e-jing.net/en/solutions/e-procurement.htm (accessed November 2006). Used with permission.

6 6 Part 3: Business-to-Business E-Commerce ONLINE FILE W5.5 E-PROCUREMENT AT SCHLUMBERGER Schlumberger is the world s largest oil service company, with over 50,000 employees in 100 countries and annual sales of over $10 billion (schlumberger.com). In 2000, the company installed a Web-based automated procurement system in Oilfield Services, its largest division. With this system, employees can buy office supplies and equipment, as well as computers, straight from their desktops. The system replaced a number of older systems, including automated and paper-based ones. The single system streamlines and speeds up the purchasing operation, reducing costs as well as the number of people involved in the process. It also enables the company to consolidate purchases for volume discounts from vendors. The new procurement system gives buyers centralized control over the entire procurement process and offers a complete purchase-to-pay solution for MRO items to strategic-indirect items. This solution improves efficiency and decreases labor costs by eliminating manual, paperbased processes and providing enterprisewide self-service procurement by: Eliminating paper-based business documents Reducing maverick spending and generating savings by enforcing contract-based purchasing Radically reducing PO processing time from days or weeks to minutes Eliminating the need for additional headcount to support internal e-procurement Eliminating the need for the buyer s resources to load and manage catalogs and price files Integrating ERP or existing accounting systems Integrating ERP for master data such has users, cost centers, shipping and billing addresses, and organizational structures Providing advanced functionality for streamlined processing Providing standardized purchasing reports by cost center, supplier, organization, commodity, and others Prices are negotiated with individual vendors before their items are put into Schlumberger s system. For example, Office Depot s entire catalog is posted on the MarketSite (now part of Product Manager from Perfect.com), but Schlumberger employees only see negotiated products and prices. In 2005, the company planned to negotiate prices in real time through auctions and other bidding systems. The benefits of the procurement system are clear. The cost of goods has been reduced; transaction costs also have fallen. Employees spend much less time in the ordering process, thus giving them more time for their core work. The system also is more cost-efficient for the suppliers, who can then pass along savings to Schlumberger. By using one system worldwide, employees who are transferred do not have to learn a new system at their new location. Procurement effectiveness has been increased because it is now possible to track all procurement activities. Getting the system up and running was easy because it was implemented in stages and ran at the same time as existing systems. Employees did not have to deal with implementation issues once the system was in place, the old system was disabled, and there were no complaints with regard to the old system being shut down because it was no longer in use. By 2006, the system was used by over 6,000 users in 83 countries for the procurement of over $2 billion in goods and services each year. The system delivers significant cost savings, improved productivity, and error reduction. The RFQ process and special request purchases are now automated, connecting business processes between systems and partners. Questions 1. Describe the benefits of the new system over the old system. 2. Describe how the e-procurement system operates. 3. Summarize the benefits of e-procurement to the company and its employees. REFERENCES FOR ONLINE FILE W5.5 Commerce One. Schlumberger: Customer Profile. commerceone.com/customers/profiles/schlumberger. pdf (no longer available online). Ovans, A. E-Procurement at Schlumberger. Harvard Business Review (May June 2000). Perfect.com. Perfect Manager perfect.com/ solutions/perfectprocure.html (accessed September 2006). Schlumberger. Schlumberger Corporate Profile. slb.com/ content/about/who.asp? (accessed September 2006).

7 ONLINE FILE W5.6 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 7 THE PROCUREMENT REVOLUTION AT GENERAL ELECTRIC General Electric s material costs increased 16 percent between 1982 and 1992 (gxs.com 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 requisition, 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 7 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 2 hours from the time the corporate sourcing department started the process, suppliers were notified of incoming RFQs by , fax, or EDI. They were given 7 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 by 50 percent the number of staff involved in the procurement process 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 took 9 to 11 days. 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 supplier that charged 20 percent less than the second-lowest bidding supplier. 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.

8 8 Part 3: Business-to-Business E-Commerce 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 100,000 trading partners in 58 countries, and in 2004 it processed over 1.2 billion transactions valued at over $1 trillion. It is one of the most profitable dot-com 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 The GE 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 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.) REFERENCES FOR ONLINE FILE W5.6 gxs.com (accessed November 2006). Moozakis, C. GE Scales Back. Internet Week, May 10, internetweek.cmp.com/newslead01/lead htm (accessed November 2006). Trading Process Network. Extending the Enterprise: TPN Post Case Study GE Lighting. Trading Process Network, tpn.geis.com/tpn/resource_center/ casestud.html (accessed January 2000).

9 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 9 ONLINE FILE W5.7 UNITED TECHNOLOGIES USES A THIRD-PARTY AUCTIONEER: FREEMARKETS Imagine the following scenario: United Technologies Corp. needs suppliers to make $24-million worth of circuit boards. Twenty-five hundred suppliers, whose names were found in electronic registries and directories, were identified as possible contractors. The list of possible suppliers was submitted to FreeMarkets (ariba.com), a third-party auctioneer. Experts at FreeMarkets reduced the list to 1,000 based on considerations ranging from plant location to the size of the supplier. After further analysis of plant capacity and customer feedback, the list was further reduced to 100. A detailed evaluation of the potential candidates resulted in 50 qualified suppliers, who were then invited to bid. Those 50 suppliers received a password to review the circuit board specifications online. A 3-hour auction of online competitive bidding was conducted. FreeMarkets divided the job into 12 lots, each of which was put up for bid. At 8:00 a.m. the first lot, valued at $2.25 million, was placed online. The first bid was $2.25 million, which was seen by all bidders. Minutes later, another bidder placed a $2.0 million bid. Using the reverse auction approach, the bidders further reduced their bids. Minutes before the bid closed, at 8:45 A.M., the 42nd bid, which was for $1.1 million, was received. No other bids were received. When the bidding ended, the bids for all 12 lots totaled $18 million (about a 35 percent savings to United Technologies). To finalize the process, FreeMarkets conducted a comprehensive analysis of several of the lowest bidders of each lot, attempting to look at other criteria in addition to price. Based on the bid amount as well as other factors, FreeMarkets then recommended the winners and collected its commission fees. (For more on e-procurement at United Technologies, see Britton 2000.) Freemarkets is now a division of Ariba.com. Questions 1. What type of auction is this? 2. What role does FreeMarkets play in the procurement process? 3. Why would a large company such as United Technologies need an intermediary? REFERENCES FOR ONLINE FILE W5.7 Britton, K. E-Procurement at United Technologies. Business 2.com, November 14, FreeMarkets. freemarkets.com, 1999 (accessed October 2002). Now ariba.com (old files are no longer available). Jahnke, A. How Bazaar. CIO Magazine, August 1, 1998.

10 10 Part 3: Business-to-Business E-Commerce Online File W5.8 E-Negotiation Systems E-negotiation systems (ENSs) started in the mid-1990s with efforts such as Kashah and from MIT. Each year, 40 universities in 21 countries competed in an international e-negotiation tournament (e.g., see interneg.org) and enegotiation.org). The following are some negotiating agents. WebNS WebNS is a Web-based negotiation process support tool that has been tested in several experiments: Complex labor union and management negotiation in comparison with face-to-face meetings; online mediation using a case of resolving conflict between a consumer and a company; and multimedia negotiation using a case of remote house purchase negotiation. To make it more reliable and suitable to run anywhere in an e-negotiation tournament, WebNS has been reprogrammed by using JSP on an IBM WebSphere server. The system still needs further improvements. Negoisst Negoisst is a negotiation support system that combines communication management with document management. It enables complex dynamic negotiations between human negotiators, guides them through the complex negotiation process, and provides support rather than an automation of negotiations. Users are allowed to specify preferences on both a discrete and a continuous scale, and each (counter-) offer is then evaluated based on the specific preferences. New negotiation items can also be added to lead to a reassessment of preferences. SimpleNS SimpleNS (invite.concordia.ca/inspire/about.html) has been developed for teaching and conducting comparative studies on the use and effectiveness of different ENSs. A virtual negotiation table allows users to exchange offers and messages. The system displays the negotiation case and other information required to conduct the negotiation, presents a form for users to write messages and offers, and shows the negotiation history in which all messages and offers are displayed in one table that includes a time-stamp. e-agora e-agora is an experimental marketplace that allows buyers and sellers to engage in multi-issue negotiations. Protocols are based on a negotiation phase model and implemented in the system. The purpose is to use e-agora in the study of behavioral, commercial, and social aspects of e-marketplaces and e-negotiations. e-agora services include a software agent, a proactive assistant to the users, which has three main objectives: (1) identifying alternative offers that the user may find attractive; (2) critiquing an offer that the user is considering for submission; and (3) critiquing an offer that the user receives from an opponent. The initial assessment of e-agora was based on a small-scale usability testing with two groups of participants. One group conducted negotiations with the support of the agent, the other without. The preliminary results show that 92 percent of the participants are in favor of employing e-agora to buy and sell products over the Web, and 83 percent stated the agent provided helpful advice and suggestions in their negotiations. Successful negotiations increased by 17 percent overall, and the participants requested additional services from the agent, including the suggestion of possible negotiation strategies, enhanced offer critiques, and partial negotiation automation. Invite Invite (InterNeg virtual integrated transaction environment) is a software platform capable of facilitating, supporting, and aiding e-negotiations. Its present purpose is to provide a highly customizable and flexible environment for bilateral negotiation. It may be used either when the Invite manager specifies the negotiation problem and process prior to the negotiation or when the negotiation problem and process are defined during the negotiation. Other Agents Several other negotiation agents also are available, including Inspire, MeetingOne, Smartsettle (smartsettle.com), and FamilyWinner. For details, see enegotiation.org.

11 ONLINE FILE W5.9 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 11 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 are covered in Appendix 6A. 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 documentdelivery 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. 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 value-added network (VAN), which connects the hospital to its suppliers

12 12 Part 3: Business-to-Business E-Commerce EXHIBIT W5.9.1 Purchase Order (PO) Fulfillment With and Without EDI Start P.O. 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 P.O. Form P.O. P.O. Computer Convertor Generates Standardized P.O. 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 (see Exhibit W5.9.2). The system also can connect to other hospitals or to centralized joint purchasing agencies. 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 Wal-Mart 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

13 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 13 EXHIBIT W5.9.2 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 PC/EDI Modem VAN PC/EDI Translator Dietary Supplier s System Material Management: PC/EDI Translator PC/EDI Translator Materials Supplier s System Mainframe Other Hospitals PC/EDI Translators PC to Mainframe Links Telephone Lines Mainframe 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 TPS (transaction processing system) 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 manufactures, 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

14 14 Part 3: Business-to-Business E-Commerce reality, few small or medium 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 startup 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). 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 (see Boucher-Ferguson 2002). A comparison of the traditional EDI and Internet-based EDI is provided in Exhibit W 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.

15 EXHIBIT W5.9.3 Benefits of EDI Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 15 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 TPS (transaction processing system) environment, saving money and increasing efficiency. Payment collection can be shortened by several weeks. Data may be entered off-line, 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 manufactures, shippers, and warehouses almost in real time. EDI can save companies a considerable amount of money. 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 Internetbased 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 Witte et al. (2003). 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. Tradelink of Hong Kong was successful in recruiting only several hundred of the potential 70,000 companies to a traditional EDI that communicated with government agencies regarding export/import transactions. In 2001, Tradelink s Internetbased system had thousands of companies registered, and hundreds were being added monthly. 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 Internet-based 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.

16 16 Part 3: Business-to-Business E-Commerce REFERENCES FOR ONLINE FILE W5.9 Boucher-Ferguson, R. Writing the Playbook for B2B. Wilson Internet, January 29, 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, Witte, C. L., M. Grünhagen, and R. L. Clarke. The Integration of EDI and the Internet. Information Systems Management (Fall 2003). ONLINE FILE W5.10 XML UNIFIES AIR CARGO TRACKING SYSTEM TradeVan Information Services of Taiwan provides information services about the cargo flights of different airlines. As such, it can be classified as a B2B intermediary. Because different airlines have different information systems, the query results from each airline differ in format. XML can facilitate data exchange between such heterogeneous databases. A special application was developed by Li and Shue (2003) to unify different document presentations for cargo status information in Taiwan. In addition, the information can be presented on WAP-based cell phones. Shippers and receivers can use the system to track the status of deliveries. Prior to the installation of the system, an air cargo shipment spent 80 percent of its transport time waiting and only 8 percent in the air. The new system is expected to reduce delays significantly, to the benefit of all members of the supply chain. The system offers a uniform cargo status inquiry, and it answers queries with a standardized presentation, which can be personalized to offer each airline the particular information it wants. Such standardization enables customs brokers to reduce cycle time by preparing declarations of imports faster. Buyers and other supply chain partners can schedule production lines with precision in advance because they can more accurately anticipate the time it will take imports to clear customs. Finally, the quality of door-to-door delivery companies such as FedEx and UPS can be improved due to quick communication between shippers and delivery companies. A fast delivery of information in standardized format is helping to improve the supply chain by reducing both delivery lead times and inventory levels. Questions 1. What problem does XML solve? 2. What are the benefits of this system to shippers and receivers? REFERENCES FOR ONLINE FILE W5.10 Li, S. T., and L. Y Shue. A Study of Logistics Infomediary in Air Cargo Tracking. Industrial Management and Data Systems 103, no. 1 (2003). tradevan.com.tx (accessed January 2001).

17 Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets 17 Online File W5.11 XBRL: Extensible Business Reporting Language XBRL (extensible Business Reporting Language) is an international standard for electronic transmission of business and financial information. As of September 2005, companies can use it to file financial reports electronically to the SEC and FDIC. With XBRL, all the company s financial data are collected, consolidated, published, and consumed without the need to use Excel spreadsheets. The use of XBRL enables government analysts to validate information submitted in hours instead of 2 to 3 weeks. For details, see Malykhina (2006). Figure W illustrates how XBRL works. EXHIBIT W How XBRL Works Information Generation Sources: ERP Databases Files Financial Data USAA GAAP Taxonomy Standards Validate and Publish Company Extension Taxonomy Output Distribution, Consumption XBRL Documents Analysts Regulators Public Investors Financial Institutions According to Malykhina (2006), the Federal Financial Institutions Examination Council found that XBRL helps banks: Generate cleaner data, including written explanations and supporting notes Produce more accurate data with fewer errors that require follow-up by regulators Transmit data faster to regulators and meet deadlines Increase the number of cases and amount of information that staffers can handle Make information available faster to regulators and the public Address issues and concerns in their filings rather than after the fact

18 18 Part 3: Business-to-Business E-Commerce REFERENCE FOR ONLINE FILE W5.11 Malykhina, E., XBRL: More than a Must-Do. Information Week, May 29, 2006.