REFERENCES FOR ONLINE FILE W4.1. Application Case CISCO SYSTEM S CONNECTION ONLINE ONLINE FILE W4.1. Questions

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1 Chapter Four: B2B E-Commerce 4-1 ONLINE FILE W4.1 Application Case CISCO SYSTEM S CONNECTION ONLINE Customer Service Cisco began providing electronic support to its business 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). (Not to be confused with Cisco Learning connection, which is related to e-learning at Cisco, see Chapter 5.) By 2004, Cisco s customers and reseller partners were logging onto Cisco s website 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 B2B 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 (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. Tracking Order Status Each month Cisco used to receive over hundreds of thousands of 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 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, Cisco has saved several hundred dollars per year, or approximately 20 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 Cisco s Six Sigma mission. Enhanced technical support and customer service. With more than 90 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 online its hardware (routers, 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 W4.1 Cisco Annual Report. Cisco Systems, cisco.com/web/ about/ac49/ac20/ac19/ar2005/index.html (accessed December 2010). Hoover, J. N. The Cisco Premium. InformationWeek, July 31 August 7, 2006.

2 4-2 Part 2: EC Applications ONLINE FILE W4.2 Application Case BOEING S SPARE 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), or Boeing Spares, 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.) The system is simple and accessible to any authorized Boeing customer. Its major capabilities are: Parts: Customers can view up-to-date part information such as prices, availability, and interchangeability. Partial part number search is available. Orders: Customers can order as many as 25 items at a time, change an existing order, or check the status of their orders. Quotes: Customers can request a price quote or view existing price quotes. Receive quote information back via . Contacts: Instantly retrieve information on how to contact people at Boeing Spares. Help: Get answers to questions in PART s Help and Frequently Asked Question sections. Accuracy and speed: Customers who are currently telephoning, faxing, telexing, or ing orders benefit from more accurate orders submitted via the system. In addition, orders are processed and acknowledged in seconds. Cost saving: The Boeing PART Page may prove to be less expensive than other communication methods, depending on the customer s local cost of Internet access. Minimal training: The Boeing PART Page is designed to be intuitive for even the first-time user. The screens and data entry fields are uncomplicated and easy to navigate. 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 webpage included up-to-date parts information, such as availability, price, and whether a part is interchangeable with another part. Orders are

3 Chapter Four: B2B E-Commerce 4-3 ONLINE FILE W4.2 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 some of the information provided by PART. 4. List and briefly discuss the benefits of PART to Boeing. 5. List and briefly discuss the benefits of PART to Boeing s customers. REFERENCES FOR ONLINE FILE W4.2 Boeing Launches New E-Business Web Site. Aerotech News and Review Journal of Aerospace and Defense Industry News (May 12, 2000). Boeing. Boeing Part Page: Fast, Easy Access to the Part You Want and Need boeing.com/commercial/ aviationservices/brochures/boeing_part_page.pdf (accessed December 2010). Boeing Commercial Aviation. boeing.com/commercial/ spares/parts.html (accessed December 2010).

4 4-4 Part 2: EC Applications Online File W4.3 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 W4.3.1 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. 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 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 manager Demand aggregator Consignment manager Just-in-time order manager Document indexing SML exchanger Document version controller Periodical reports Customized reports Statistical analysis

5 Chapter Four: B2B E-Commerce 4-5 Online File W4.3 Module 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 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 January 2011). 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 websites. 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 integrationoriented 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 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 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 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.

6 4-6 Part 2: EC Applications Online File W4.3 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. REFERENCES FOR ONLINE FILE W4.3 e-jing. E-Procurement. e-jing.net/en/solutions/e-procure ment.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 December 2010). Moai. Solutions Overview. moai.com/solutions/solutions_ overview.asp (accessed December 2010). 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., 2006.

7 Chapter Four: B2B E-Commerce 4-7 ONLINE FILE W4.4 EC Application 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 is a subsidiary of Intercontinental Exchange (ICE). 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). In 2010, ChemConnect provides consulting services and management to companies in the supply chain of the chemical energy and related industries. 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. REFERENCES FOR ONLINE FILE W4.4 Angwin, J. Top Online Chemical Exchange Is an Unlikely Success Story. Wall Street Journal Online, January 8, chemconnect.com/pdfs/wsj_successstory.pdf (accessed July 2011). chemconnect.com (accessed December 2010). Rappa, M. Case Study: ChemConnect Managing the Digital Enterprise digitalenterprise.org/cases/ chemconnect_text.html (accessed May 2009).