E-commerce 2019
business. technology. sSociety.
Fifteenth Edition
Chapter 12
B2B E-commerce: Supply
Chain Management and
Collaborative Commerce
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Learning Objectives
12.1 Discuss the evolution and growth of B2B e-commerce, as well as
its potential benefits and challenges..
12.2 Understand how procurement and supply chains relate to B2B e-
commerce.
12.3 Identify major trends in supply chain management and
collaborative commerce.
12.4 Understand the different characteristics and types of Net
marketplaces.
12.5 Understand the objectives of private industrial networks, their role
in supporting collaborative commerce, and the barriers to their
implementation.
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Amazon Takes on B2B with Amazon
Business
• Class Discussion
– What made the difference in Amazon Business
moving from being a distributer of supplies to a real
B2B marketplace?
– What benefits over other B2B marketplaces does
Amazon Business offer buyers?
– What benefits do suppliers have in using Amazon
Business?
– Does Amazon Business pose any disadvantages for
buyers or sellers?
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Trends in B2B E-commerce
• Flexibility: growing emphasis on rapid-response and optimal supply
chains
• Resurgence in Net marketplaces bringing together hundreds of
suppliers and thousands of buying firms
• Supply chain visibility—real time
• Social/mobile commerce and customer intimacy
• Cloud computing
• Big data and growing use of business analytics
• Internet of Things
• Accountable and sustainable supply chains
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Basic Definitions
• B2B commerce:
– All types of computer-enabled inter-firm trade
– Before Internet, B2B transactions called trade or
procurement process
• B2B e-commerce:
– The portion of B2B commerce enabled by the Internet
• Supply chains
– Organizations, people, business processes, technology,
information required to produce products efficiently
– Often global
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Figure 12.4 The Procurement Process
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The Evolution of B2B Commerce
• Automated order-entry systems
– Seller-side solution
• Electronic data interchange (EDI)
– Buyer-side solution
– Hub-and-spoke system
– Serve vertical markets
• B2B e-commerce websites
• Net marketplaces
• Private industrial networks
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Figure 12.1 The Evolution of the Use of
Technology Platforms in B2B E-commerce
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The Growth of B2B E-commerce (1 of 2)
• B2B e-commerce will grow to almost 50% of total U.S.
inter-firm trade by 2022
• Private industrial networks continue to play dominant role
in B2B
• Non-EDI B2B e-commerce most rapidly growing type of
e-commerce
• EDI continues as workhorse of B2B commerce
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Electronic Data Interchange (EDI)
• Communications protocol for exchanging documents
among computers
– Each industry has own standards
• Developed in 1970s, 1980s to automate exchange and
reduce cost and errors in purchase orders, shipping
documents, and more
• Today, provides for exchange of critical business
information between computer applications supporting
wide variety of business processes
• Suited to small set of strategic partners
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Figure 12.6 The Evolution of EDI as a B2B
Medium
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The Growth of B2B E-commerce (2 of 2)
• Not all industries similarly affected by B2B e-commerce
• Not all industries would benefit equally
• Factors influencing move to e-commerce
– Significant utilization of EDI
– Large investments in IT and Internet infrastructure
– Market concentrated on purchasing or selling
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Figure 12.2 Growth of B2B E-commerce in
the United States
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Potential Benefits and Challenges of B2B
E-commerce (1 of 2)
• Lower administrative costs
• Lower search costs for buyers
• Reduced inventory costs
• Lower transaction costs
• Increased production flexibility by ensuring just-in-time
parts delivery
• Improved quality of products by increasing cooperation
among buyers and sellers
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Potential Benefits and Challenges of B2B
E-commerce (2 of 2)
• Decreased product cycle time
• Increased opportunities for collaboration
• Greater price transparency
• Increased visibility, real-time information sharing
• However, some risk is posed by increased globalization
and consolidation
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Insight on Society: Where’s My iPad?
Supply Chain Risk and Vulnerability
• Class discussion:
– Why does concentrating production on fewer
suppliers also concentrate risk?
– How does globalization play a part in increased risk?
– What types of procedures could be implemented,
given increased globalization, to reduce risk?
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The Procurement Process and the Supply
Chain
• Procurement process:
– The way firms purchase materials they need to make
products
• Steps in procurement process
– Deciding who to buy from and what to pay
– Completing transaction
– Each step is composed of many business processes
and subactivities requiring data to be recorded in
seller, buyer, and shipper information systems
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Figure 12.4 The Procurement Process
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Types of Procurement (1 of 2)
• Firms purchase two types of goods
– Direct goods: Integrally involved in production process
– Indirect goods: All goods not directly involved in production
process (MRO goods)
• Firms use two methods to purchase
– Contract purchasing:
▪ Involves long-term written agreements to purchase
specified products, with agreed-upon terms and quality
– Spot purchasing:
▪ Involves purchase of goods based on immediate needs
in larger marketplaces that involve many suppliers
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Types of Procurement (2 of 2)
• Procurement is highly information intensive and labor intensive
– Requires managing information among many corporate
systems
– Involves over 1 million U.S. workers
• Purchasing managers
– Key players in procurement process
– Key decision-makers for adoption of B2B e-commerce
solutions
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Multi-Tier Supply Chain
• Complex series of transactions between firm and
thousands of suppliers, supplying thousands of goods
• Challenges
– Supply chain visibility
– Demand forecasting
– Production scheduling
– Order management
– Logistics management
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Figure 12.5 The Multi-Tier Supply Chain
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The Role of Existing Legacy Computer
Systems
• Legacy computer systems
– Generally, older mainframe and minicomputer
systems used to manage key business processes
within firm
• Enterprise systems
– Corporate-wide
– Support/control all aspects of production, including
▪ Procurement
▪ Finance
▪ Human resources
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Trends in Supply Chain Management
• Supply chain management (SCM)
– Activities used to coordinate procurement process
• Major trends in SCM
– Continual efforts to improve process
– Trends include: Just-in-time and lean production,
supply chain simplification, adaptive supply chains,
sustainable supply chains, electronic data
interchange, supply chain management (SCM)
systems
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Just-In-Time and Lean Production
• Just-in-Time production
– Method of inventory cost management
– Seeks to keep excess inventory at a bare minimum
• Lean production
– Set of production methods and tools
– Focuses on elimination of waste throughout customer
value chain, not just inventory
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Supply Chain Simplification
• Reducing size of supply chain
– Working with strategic group of suppliers to reduce product
and administrative costs and improve quality
• Essential for just-in-time production models
• May involve:
– Joint product development and design
– Integration of computer systems
– Tight coupling
▪ Ensuring precise delivery of ordered parts at specific
times
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Adaptive Supply Chains
• Reducing centralization
– Reduce risks caused by relying on single suppliers who
are subject to local instability
▪ For example: European financial crisis, Japanese
earthquake
• Creating regional- or product-based supply chains
– Allowing production to be moved to temporary safe
harbors in case of local manufacturing disruptions
– Focus on “optimal-cost”, distributed manufacturing, and
flexible supply chains that can shift to low-risk areas
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Accountable Supply Chains
• Labor conditions in low-wage, under-developed producer countries
are acceptable to consumers
– Slave/forced and child labor
– Routine exposure to toxic substances
– More than 48 h rs/week
ou
– Harassment, abuse, and sexual exploitation
– Adequate compensation
• Efforts to make global supply chains more accountable and
transparent to reporters and citizens
– Fair Labor Association
– National Consumers League, Human Rights First, and more
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Sustainable Supply Chains
• Taking social and ecological interests into account
– For example: water usage, air pollution
• Using most efficient environment for production,
distribution, logistics
– Good business, over long-term
▪ Good risk management
– Create value for consumers, investors, communities
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Mobile B2B
• Mobile devices increasingly important in all aspects of
B2B e-commerce
– Used in all phases of purchase process
– Users increasingly expect B2B e-commerce sites to
be accessible from mobile devices
• Bring Your Own Device (BYOD) policies
• Supply chain software and network providers providing
support for mobile platform
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B2B in the Cloud
• Cloud-based B2B systems
– Shift much of the expense of B2B systems from firm to B2B
network provider (data hub or B2B platform)
• Cloud platform owner provides
– Computing/telecommunications capabilities
– Software
– Connectivity
– Data cleansing and quality
– File storage
• Network effects: Costs spread out over all members
• Cloud-based solutions can be implemented rapidly
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Supply Chain Management Systems
• Continuously link activities of buying, making, and moving
products from suppliers to purchasing firms
– SAP and Oracle Mobile apps for smartphones, tablets
• Integrates demand side of business equation by including
order entry system in the process
• With SCM system and continuous replenishment,
inventory is eliminated and production begins only when
order is received
• Hewlett Packard’s SCM system: Elapsed time from order
entry to shipping PC is 48 hours
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Figure 12.8 Supply Chain Management
Systems
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Blockchain and Supply Chain Management
• Transaction database that operates on a distributed P2P
network that connects participants in a single database
– Secure
– Reliable
– Resilient
– Inexpensive
• Is expected to transform supply chain management,
eventually replacing EDI
• Firms expected to spend over $2 billion on blockchain
hardware, software, and services in 2018
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Insight on Technology: Blockchain Takes
on the Diamond Supply Chain
• Class discussion:
– What challenges is De Beers hoping to deal with by
implementing a blockchain system?
– How does De Beer's blockchain system work?
– If you were purchasing a diamond, would you want to
know its provenance? Would you be willing to pay
more for this information? If so, how much more?
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Collaborative Commerce
• Use of digital technologies for organizations to collaboratively
design, produce, and manage products through life cycles
• Moves focus from transactions to relationships among supply
chain participants
• Unlike EDI, more like an interactive teleconference among
members of supply chain
• Use of Internet technologies for rich communications
environment
– Sharing designs, documents, messages, network
meetings, videconferencing
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Figure 12.9 Elements of a Collaborative
Commerce System
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Social Networks and B2B
• Social networks can provide personal connections that
can help decision making in supply chain
• Example: Dell’s YouTube channel
• Example: Cisco’s Facebook pages for product campaigns
for business clients
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B2B Marketing
• More interpersonal than traditional retail marketing
• B2B contract selling
– Very long-standing relationships between suppliers
and buyers
• Spot purchase markets for MRO, commodities
– More similar to B2C marketing tactics
– Mobile advertising
– Predictive analytics
– Sales enablement systems
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Net Marketplaces
• Ways to classify Net marketplaces:
– Pricing mechanism, nature of market served, ownership
• By business functionality
– What businesses buy (direct v s. indirect goods)
ersu
– How businesses buy (spot purchasing v s. long-term sourcing)
ersu
– Four main types
▪ E-distributors
▪ E-procurement
▪ Exchanges
▪ Industry consortia
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Table 12.3 Characteristics of Net
Marketplaces: A B2B Vocabulary
Characteristic Meaning
Bias Sell-side v s. buy-side v s. neutral. Whose interests are
ersu ersu
advantaged: buyers, sellers, or no bias?
Ownership Industry v s. third party. Who owns the marketplace?
ersu
Pricing mechanism Fixed-price catalogs, auctions, bid/ask, and RFPs/RFQs
Scope/focus Horizontal v s. vertical markets
ersu
Value creation What benefits do they offer customers or suppliers?
Access to market In public markets, any firm can enter, but in private markets,
entry is by invitation only
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Figure 12.10 Pure Types of Net
Marketplaces
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E-distributors
• Most common type of Net marketplace
• Electronic catalogs representing products of thousands of
direct manufacturers
• Typically, independently owned intermediaries
• Offer industrial customers single source to purchase indirect
goods (MRO) on spot basis
• Typically, horizontal
• Usually, fixed price discounts for large customers
• Example: W.W. Grainger, Amazon Business
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Figure 12.11 E-distributors
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E-procurement Net Marketplaces
• Independently owned intermediaries
• Connect hundreds of suppliers of indirect goods
• Firms pay fees to join market
• Long-term contractual purchasing of indirect goods
• Revenues from transaction fees, licensing consultation
services and software, network fees
• Offer value chain management (VCM) services
• Many-to-many market
• Example: Ariba
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Figure 12.12 E-procurement Net
Marketplaces
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Exchanges
• Independently owned online marketplaces
• Connect hundreds to thousands of suppliers and buyers
in dynamic, real-time environment
• Vertical market, spot purchasing, single industry
• Typically charge commission fees on transaction
• Tend to be buyer-biased; suppliers disadvantaged by
competition
• Many have failed due to low liquidity
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Figure 12.13 Exchanges
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Industry Consortia
• Industry-owned vertical markets
• Purchase of direct inputs from set of invited participants
• Emphasize long-term contractual purchasing, stable
relationships, creation of data standards
• Aim to unify supply chain within entire industry through
common platform
• Revenue from transaction and subscription fees
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Figure 12.14 Industry Consortia
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Private Industrial Networks (1 of 2)
• Most prevalent form of B2B e-commerce
• Web-enabled networks for coordination of trans-
organizational business processes (collaborative
commerce)
– Direct descendant of EDI; closely tied to ERP
systems
– Manufacturing and support industries
– Single, large manufacturing firm sponsors network
• Range in scope from single firm to entire industry
• Example: Procter & Gamble
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Private Industrial Networks (2 of 2)
• Objectives include:
– Efficient purchasing and selling industry-wide
– Increasing supply chain visibility
– Closer buyer–supplier relationships
– Global scale operations
• Focus on continuous business process coordination
• Typically, focus on single sponsoring company that
“owns” the network
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Figure 12.15 P&G’s Private Industrial
Network
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Insight on Business: Walmart's Private
Industrial Network Supports Omni-
channel Growth
• Class discussion:
– What is Walmart’s Retail Link system and how has it
changed since the early 1990s?
– What functionality does Walmart’s GRS provide?
– Why did Walmart have a inventory problem?
– What other steps is Walmart taking in its effort to
compete with Amazon?
– Do you prefer to shop online at Walmart or Amazon?
Why?
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Private Industrial Networks and
Collaborative Commerce
• Forms of collaboration:
– Collaborative resource planning, forecasting, and
replenishment (CPFR):
– Demand chain visibility
– Marketing coordination and product design
▪ Can ensure products fulfill claims of marketing
▪ Feedback enables closed loop marketing
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Figure 12.16 Pieces of the Collaborative
Commerce Puzzle
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Implementation Barriers
• Concerns about sharing of proprietary, sensitive data
• Integration of private industrial networks into existing ERP
systems and EDI networks difficult, expensive
• Requires change in mindset and behavior of employees
and suppliers
– All participants lose some independence
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Careers in E-commerce
• Position: Junior Supply Chain Analyst
• Qualification/Skills
• Preparing for the Interview
• Possible Interview Questions
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Copyright
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