B2B E-COMMERCE: SUPPLY CHAIN MANAGEMENT AND COLLABORATIVE COMMERCE

Chapter 12

Learning Objectives• Define the term supply chain and describe its components• Describe supply chain management and its goals• Identify various problems that can occur along supply chains• Describe the evolution of solutions used to improve supply chain

management• Define B2B commerce and understand its scope and history• Identify the main types of B2B e-commerce: Net marketplaces and

private industrial networks• Identify the major trends in the development of the four types of

Net marketplaces• Identify the role of private industrial networks in transforming the

supply chain• Understand the role of private industrial networks in supporting

collaborative commerce

What is a supply chain?• A supply chain refers to the flow of materials, information,

payments, and services from raw materials suppliers, through factories and warehouses, to the end customers

• There are typically three types of flows in the supply chain:• Materials• Information• Financial

• In some supply chains there are fewer types of flows – for example, in service industries there may be no physical flow of materials

Problems Along the Supply Chain• The problems along the supply chain stem mainly from

two sources:• From uncertainties• From the need to coordinate several activities, internal units, and

business partners• A major source of uncertainty is the demand forecast that

may be influenced by competition, prices, weather conditions, technological development, and customers’ general confidence

• Other uncertainties exist in delivery times• Quality problems of materials and parts may also create

production delays

Solutions to Supply Chain Problems• Over the years, organizations have developed many

solutions to the supply chain problems• One of the earliest solutions was vertical integration

where one organization owns the firms involved in each step in the supply chain

• The most common solution has been building inventories as an “insurance” against supply chain uncertainties

• The most recent solution has been increased use of interorganizational information systems for sharing information between supply chain partners and more accurate measuring of supply chain performance

• These systems include MRP, ERP, supply chain systems, and more recently various forms of Internet-based B2B e-commerce

B2B E-Commerce and SCM• The total amount of B2B trade in the US in 2013 was

about $12.9 trillion• B2B e-commerce contributed about $4.7 trillion of that

amount, and by 2017 this should grow to $6.6 trillion in the US

• The process of conducting trade among business firms is complex and requires significant human intervention, and therefore, consumes significant resources

• Some firms estimate that each purchase order costs them at least $100 in administrative overhead

B2B E-Commerce and SCM (cont.)• Administrative overhead includes processing paper,

approving purchase decisions, spending time using the telephone and fax to search for products, arranging for shipping, and receiving the goods

• Across the economy, this adds up to trillions of dollars annually being spent for procurement processes that could potentially be automated

• If even just a portion of inter-firm trade were automated, then literally trillions of dollars might be released for more productive uses

The Evolution of B2B E-Commerce• B2B commerce has evolved over a 35-year period

through several technology-driven stages• These stages include:

• Automated order entry systems• Electronic data interchange (EDI)• Digital storefronts• Net marketplaces• Private industrial networks• Social networks

Potential Benefits of B2B E-Commerce

• Lower administrative costs• Lower search costs for buyers• Reduce inventory costs• Lower transaction costs• Increase production flexibility• Improve quality of products by increasing cooperation

among buyers and sellers• Decrease product cycle time• Increase opportunities for collaborating with suppliers and

distributors• Create greater price transparency• Increase the visibility and real-time information sharing

among all participants in the supply chain network

Types of Procurement• Two distinctions are important for understanding how B2B

e-commerce can improve the procurement process• First, firms make purchase of two kinds of goods from

suppliers:• Direct goods• Indirect goods

• Second, firms use two different methods for purchasing goods:• Contract purchasing• Spot purchasing

Trends in SCM and Collaborative Commerce

• Just-in-time and lean production• Supply chain simplification

• Work closely with a smaller group of strategic supplier firms

• Supply chain black swans: adaptive supply chains• Accountable supply chains: labor standards• Sustainable supply chains: lean, mean and green• Supply chain management systems: mobile B2B

• Continuously link partner information systems

• Collaborative commerce• Use of digital technologies to collaboratively design, develop, build,

and manage products across their life cycle (support product development and order fulfillment activities)

• Social networks and B2B: the extended social enterprise

Main Types of Internet-Based B2B Commerce

• There are two generic types of Internet-based B2B commerce systems:• Net marketplaces• Private industrial networks (PINs)

• Net marketplaces bring together potentially thousands of sellers and buyers into a single digital marketplace operated over the Internet

• Private industrial networks bring together a small number of strategic business partner firms that collaborate to develop highly efficient supply chains

Net Marketplaces• One of the most compelling visions of B2B e-commerce is

that of an electronic marketplace on the Internet that would bring thousands of fragmented suppliers into contact with hundreds of major purchasers of industrial goods

• In pursuit of this vision, well over 1500 Net marketplaces sprang up in the early days of e-commerce

• Many failed, but about 200 still survive

Private Industrial Networks• Private industrial networks (PINs) today form the largest

part of B2B e-commerce• Industry analysts estimate that, in 2012, over 50% of B2B

expenditures by large firms were for development of private industrial networks

• PINs can be considered the foundation of the “extended enterprise,” allowing firms to extend their boundaries and their business processes to include supply chain and logistics partners

• A PIN is a Web-enabled network for the coordination of trans-organizational business processes (sometimes also called collaborative commerce)

Characteristics of PINs• The specific objectives of a PIN include:

• Developing efficient purchasing and selling processes• Developing industry-wide resource planning• Increasing supply chain visibility• Achieving closer buyer-seller relationships• Operating on a global scale• Reducing industry risk by preventing imbalances of supply and

demand• Coordinating marketing and product design

Implementation Barriers• There are a number of barriers to successful collaborative

commerce implementation• Participating firms are required to share sensitive data

with their business partners• Requires a significant investment of time and money• Requires a change in mindset and behavior for

employees – they must shift their loyalties from the firm to the wider trans-organizational enterprise and recognize that their fate is intertwined with the fate of their suppliers and distributors

• All firms lose some of their independence