2014 State of B2B Procurement Study: Uncovering the Shifting ...
1 B2B E-Procurement Metamediaries Intermediation Opportunities.
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Transcript of 1 B2B E-Procurement Metamediaries Intermediation Opportunities.
1
B2B
• E-Procurement
• Metamediaries
• Intermediation Opportunities
2
B2B Buying
Problems
Sourcing: Search Costs due to large number of sellers
Ordering: Workflow and transaction costs from many orders & dependent demand
Replenishment: Continued reliance on old source
Fulfillment: Monitoring costs to avoid errors
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Electronic Data Interchange (EDI)
Definition.
- First developed in the late 1960s
- Business to Business exchange of standardized documents in electronic form (e.g., Invoice, Purchase order)
Background.
• Early barriers: lack of standards, telecom infrastructure
• New national (X.12), international (EDIFACT) standards
• Used heavily by large companies (e.g., Fortune 1000)
• Enables re-structuring business relationships
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Common EDI Applications in B2B Commerce
• Quick Response (QR): POS data to supplier
• Model Stock Replenishment: Supplier manages inventory
• Materials Management: JIT systems
• Efficient Customer Response (ECR): Grocery industry chain
• Evaluated Receipt Settlement: No invoice
• Collaborative Forecasting and Replenishment: Sharing forecast
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Value Added Networks (VAN)
• Advantages: Translation, security, auditability, integrity
• Disadvantages: High price, Connect time + mailbox charges
Translateincomingdocument
VAN
Translate X.12
EDIFACT
Compliance checking
Route to mailbox
Buyer Bank
Transport company
Seller
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Why EDI was not sufficient?
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The e-Procurement Cycle
Web based Procurement Process
Old Approach: Task orientation (slow and error prone)
New Approach: Process orientation (Faster and cheaper)
1. Browse online
catalogs
2. Create Requisition
3. Check availability
7. Receiving
8. Accounts Payable
9. Route to Recipient
6. Ship Product
5. Supplier Fulfillment
4. Online Approval
5a. Check status
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Production Items
• Raw materials and components
• Scheduled by production runs
• Professional buyer initiates
• No approvals required
• High degree of automation
• Design-spec driven
Non-Production Items
• Office & computer supplies; MRO supplies; Travel
• Ad hoc, not scheduled
• Employee initiates
• Approval required
• Little automation
• Catalog driven
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Requirements of e-Procurement Systems
Purchasing Management
Quality Evaluation
Supplier Selection
Purchasing Contracts
Accounting
Order Mgt, Quotations, Negotiations
Goods Received, Source Quality
Identification, Price, Lead Time
Quantity Contracts, Discounts
Budgeting, Overheads, Costing
Most systems provide a subset of these functions!
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B2B• E-Procurement
• Metamediaries
• Intermediation Opportunities
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Large Market size
Fragmented supply chain
Some product differentiation
High search costs
Product comparison hard
High workflow costs
Markets ready for
intermediaries
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B2B Trading Models
1. Multi-vendor catalogs• Price posted, Product comparison, Customization
• Chemdex, e-Chemicals, PlasticNet, NetBuy
2. Post and Browse • Bulletin Board accessible by pre-qualified users
• One-on-one negotiation of non-standard products
• Catex (insurance), PaperExchange, CreditTrade
3. Auction• Seller driven liquidation of surplus inventory (MetalSite)
• In reverse auction, buyer specifies items and lot-sizes
• Popularized by FreeMarkets, VerticalNet, Tradeout
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B2B Revenue Models• Transaction fees
Often paid by seller (e-Steel), sometimes shared by parties Difficulty of collecting fees in post and browse exchanges Pressure to waive fees to achieve acceptance
• Membership fees (visitors with restricted privileges)
• Order posting fees with volume discounts
• Supplier listing fees (VerticalNet)
• Auction Commissions
• Selling content, trading and historical data (Manheim Online)
• Advertising
• Software licensing
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Intermediary
Intermediary Inte
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Inte
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ryMatch
buyers and suppliers
Buying guides
Credit verification Risk management
Procurement
Order fulfil
lment Settlem
ent
Metamediary Metamediary Metamediary Metamediary
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Intermediary vs. Metamediary
A successful marketplace does more than matching buyers and suppliers!
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Value Creation by Intermediary
Improve Information Flows
Improve Price / Quality
Build Liquidity
Reduce Costs
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Improve Information
Flows
Increase communication
channel efficiency
Increase the number of buyer-seller channels
Decrease the number of
communication channels
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Reduce Costs
Carrying Cost Carrying Cost
Fulfillment Cost Fulfillment Cost
Transaction Cost
Transaction Cost
Workflow Cost
Workflow CostSearch Cost
Search CostProduct Cost
Product Cost
Bulk Chemicals Office Supplies
Different industries provide different cost
reduction opportunities!
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Improve Price / Quality
Price / Quality
Number of Sellers
Savings from more
sellers
Traditional cost of search Internet cost
of search
Value Added
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Build LiquidityTransaction
automation leads to Improved
Velocity
Central marketplace leads to
Improved Reach
Improved Reach + Improved Velocity
= Liquidity
Market liquidity brings more buyers and sellers
Product liquidity helps sell goods / services
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Market Dynamics
� Cost of connection proportional to participants
� Value of market proportional to buyer-seller relationships
� Value increases if each participant can be either buyer or seller
� Value accelerates if multiple transactions occur before consumption
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B2B• E-Procurement
• Metamediaries
• Intermediation Opportunities
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Origins of Intermediaries
Buyers
Sellers Third Parties
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Origins of Intermediaries: Sellers
Electronic catalog, transaction capabilities
Access to product information and transaction automation
Migration from one seller to multi-vendor catalogs
Global Healthcare Exchange (J&J, GE Medical, Baxter, Abbott)
MetalSite by steel producers
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Origins of Intermediaries: Buyers
Buyers want catalogs or reverse auction
Gain access to product information and availability
Migration from one buyer to multi-buyer market place
GEIS TPN procurement to marketplace
Automakers’ Covisint
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3rd Party Intermediaries
– Exploit inertia in product markets
– Speed, neutrality, but acceptance?
– Internet players: (e-Steel, Chemdex, FreeMarkets)
– Infomediaries: Create virtual community, no
procurement experience (Asian Sources, SeaFax)
– Software Provider: Trusted name, but no market
experience (Ariba, Commerce One, Oracle Exchange)
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Challenges Facing Intermediaries
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B2B Myths
• The middleman must go!
• Speed is everything!
• EDI will vanish!
• Old economy companies don’t get it!
• Throw away your old systems!
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Private Exchanges
• Limited access!
• Pre-existing business relationship
• Higher level of integration
• Order confirmation, tracking
• Seller / buyer auctions
• More volume than public exchanges ($b 242 >
43 in 2000)!
• Example: Buyer GE $ 20b
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Its not the technology, stupid!
• Its about redesigning workflows, processes and structures (BPR / Change Management)!
• Its about collaboration between various parties inside and outside the company! Its about the cross-functional approach.
• Its about changing decision making! Multi-million dollar contracts today are decided by higher ups who act in weeks!
• The cost of training and process redesign exceeds technology costs.
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B2B Exchanges: Industry Outlook
• At its peak in July 2000, as many as 1400 exchanges
emerged (Source: Business Week)
• More than 100 shut down in 2000 (WSJ, May 21,
2001)
• About 200 are expected to survive! (Forrester
Research, ’01)
• Industry Life Cycle: Emergence (Many competing
approaches, few succeed)
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Key Points
• E-Procurement is a must!
• Searching for a B2B revenue model!
• More online business, fewer exchanges?