Business to Business Exchanges
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Transcript of Business to Business Exchanges
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Business to Business Exchanges
Niti ChopraNikki DouglasMike Engdale
Daniel Platschek
April 10, 2003
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What are Business to Business Exchanges?
B2B Exchanges are online marketplaces for businesses to buy and sell goods and services to and from other businesses.
PetroCosm was an online marketplace where oil and gas companies could buy and sell products.
Covisint, an exchange in the automotive industry, aims to reduce parts procurement costs by purchasing from manufacturers online.
http://b2b.ebizq.net/exchanges/kenjale_1.html, viewed February 24, 2003.Anonymous, “Covisint Moves Ahead” Manufacturing Engineering, March 2001, Vol. 126, 3, page 34.http://www.chevrontexaco.com/news/archive/texaco_press/2000/pr7_18b.asp, viewed April 4, 2003.
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Types of Exchanges Horizontal
exchanges Service a broad
range of industries. For items that are
of generic use. Must have large
number of suppliers to be effective.
Vertical exchanges Specialize in
serving one industry.
Provide better collaboration of resources, standardizations, procurement process efficiencies.
http://www.workz.com/cgi-bin/gt/tpl_page.html,template=1&content=1408&nav1=1&, viewed March 10, 2003.
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How are products presented on an
Exchange? Auctions
Sellers offer goods and buyers bid to buy.
Sellers get highest price.
Reverse Auctions Buyers post an order for
what they want to buy, sellers bid.
Buyer pays lowest price.
Electronic Catalogs
Sellers determine the content of catalog and prices.
Online Distribution
Established buyers can buy online from their supplier.
Domaracki, Gregory S., Millot, Francois, “The Dynamics of B2B E-Commerce” AFP Exchange, Jul/Aug 2001, Vol. 21 4, pp. 50-57.
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Exchange Statistics Covisint – formed by GM,
DaimlerChrysler, and Ford “Big 3” invested a total of $200 million to
start Covisint. Approximately 11,000 suppliers have used
Covisint.
PetroCosm – formed by Chevron Ended up almost $90 million in debt.
Koch, Christopher, “Covisint’s Last Chance; Can an old guy come out of retirement and save one of the icons of the new economy?”, CIO, December 1, 2002, Vol. 16 Issue 5, pages 62-69.Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
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B2B E-Commerce Growth
E-Marketer estimates that the US share will account for one half of the total. They estimate US share to be $721 billion in 2003 and $1.01 trillion in 2004.
http://www.crmassist.com/news/dispnews.asp?I=90400&t=99, viewed March 23, 2003.
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As Managers… Exchanges could introduce you to new
customers (supplier) or help reduce costs (buyer).
Introduce your company to e-commerce by purchasing “non-essential” supplies online using an exchange.
Company may be forced to engage in online business by a customer.
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What Was PetroCosm? Global internet B2B marketplace for
companies to buy and sell oil and gas products and services.
Browser-based access to products and services including drilling, electrical, pipes, valves, and fittings; and professional, engineering, and construction services.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
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Founding Members Chevron Corp. and electronic-commerce-
software developer Ariba Inc. along with Crosspoint Venture Partners and Requisite Technology Inc.
Texaco Inc. joined the partnership 2 months later.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
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Goals To create the first B2B marketplace
owned by buyers and suppliers across the energy industry.
Benefits such as aggregated purchasing, lower transaction costs and seamless access to global markets could drive $11 billion in oil and gas industry savings and efficiencies.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
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Goals Buyers were projected to save between
5% and 30% by reducing paper forms and other transaction costs.
Sellers were promised the opportunity to expand their customer base, develop new markets and reduce costs and paper work.
“Chevron and Ariba To Form Web Market For Energy Industry”, The Wall Street Journal, January 20, 2000.
http://www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil and Gas Industry”, July 18, 2000.
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Implementation Exchange went live in July of 2000. Chevron planned to target a “substantial
portion” of its annual $10 billion in spending through PetroCosm.
Former Halliburton VP, Norman C. Chambers, selected as Chief Executive Officer.
http://www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil and Gas Industry”, July 18, 2000.
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PetroCosm’s Downfall November 2000 merger of Chevron and
Texaco left only one major buyer in the exchange.
Competitors were reluctant to do business on what was seen as ChevronTexaco’s internal supplier network.
Competing exchange, Trade-Ranger, offered a much broader range of buyers including 14 major oil refining companies.
Darbonne, Nissa & Haines, Leslie, “Chevron, Texaco to form worlds’ fourth-largest oil” Oil & Gas Investor, November 2000.Sliwa, Carol, “Oil firms rush to set up supply nets” Computerworld, January 24, 2000.Messmer, Ellen, “Regulators OK petrochemical B2B exchange”, Network World, August 14, 2000.
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PetroCosm’s Downfall After only 1300 transactions in its first
year, PetroCosm was $84 million in debt. ChevronTexaco refused to pump money
into the exchange and even tried to buy back the company for pennies on the dollar.
PetroCosm shareholders refused the offer and filed for Chapter 11 bankruptcy protection in June of 2001.
Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
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PetroCosm Conclusion Exchange was focused on only a
few major buyers. The e-commerce collapse dried up
PetroCosm’s venture capital. ChevronTexaco refused continued
support of a solution they believed they could develop in-house.
Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
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Covisint Case Study Background Services Case Study Conclusion
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What is Covisint Web Based Global Business – to –
Business Exchange For The Automotive Industry “Co” represents Connectivity,
Cooperation & Collaboration. “Vis” sites Visibility on the Web. “Int” Integrity to conduct Business.
proquest.umi.com/auto’s new driving range
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Covisint’s Background GM & Ford launched their own
exchange TradeXchange by GM &
AutoXchange by Ford Thrilled both GM & Ford but
suppliers were thrown into a panic So came the idea to build a
common exchange
www.metalcenternews.com/ big three go b2b
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Covisint’s Background Lauched Feb 2000, Live Oct 2000 Public Exchange Founding Members
www.covisint.com
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Covisint’s Background
Industry Participants (Suppliers)
Technology Partners
www.covisint.com
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Covisint’s Background Technology Providers
VW, BMW did not join Currently has 11,000 suppliers Based at Southfield, Michigan
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis; InternetWeek, Manhasset; Sep 17, 2001, Iss. 878; pg. PG.1www.covisint.comAutomotive network shifts into gear; Patrick Waurzyniak; Manufacturing Engineering, Dearborn; Jan 2001; Vol. 126, Iss. 1; pg. 62
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Covisint’s Mission
Stream line the heavily fragmented supply chain network.
Bring down the procurement cost & speed up the process.
Eliminate unnecessary paperwork & administrative bottlenecks.
Allow faster communicaton within & outside the organization.
www.marketvoices.com
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Covisint’s Mission
O E MG M
D A IM L E R C H R Y S L E R
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O E MF O R D
O E MN IS S A N
R E N A U L T
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Covisint’s Services
Collaboration Procurement Solutions Supply Chain Management Quality Assurance
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Collaboration Collaboration- Virtual Project
Workspace It lets manufacturers & suppliers use the
web to design & review how parts are manufactured.
Benefits Decreases product development time Decreases Cost
www.covisint.comCan Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis, sep17,2001
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Covisint Procurement Quote Manager - Get RFQ
electronically. Benefits - Save costs, delays & time. Catalogs - An electronic purchasing
environment for indirect material. Benefits
Average reduction of 73% in transaction costs. Paperless and automated service. Average saving of 74% in process time.
www.covisint.com
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Procurement Solutions Asset Management - It lets carmakers
liquidate excess shop floor equipment & other assets.
Benefits - Help users to identify, appraise, categorize, track & sell assets.
Auctions - Rapid, real time, web based negotiation
Benefits Process reduction of 72% Users reported savings of 5-30% Both buyer & seller save timeCan Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis, sep17,2001www.covisint.com
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Buyer Auction
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Quality Assurance It offers advanced quality
planner & problem solver. Advanced Quality Planner - It is
used by automakers to make sure that parts meet necessary specifications before they go into production.
Goals- The process helps create more robust, problem-free designs and minimizes quality defects from reaching the customer.
www.covisint.com
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Quality Assurance
Problem Solver- It allows OEM’s & suppliers to solve the problem together.
Goal- The goal of Problem Solver is to help permanently correct problems not eliminated by the AQP Process.
www.covisint.com
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Supply Chain Management
Fulfillment Service - It gives members real time information about parts, inventory, and anticipated demand pulled directly from supplier’s legacy systems.
Benefits Reduction in inventory of 30-70% Reduction in premium freight costs of 50-90%
Reductions in admin costs of 40-80%
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakiswww.covisint.com
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Business Model Standard pricing for all services. Collaboration - monthly subscription fee. Procurement - per event fee. Quality Assurance - monthly subscription
fee. Supply Chain - a combination of
transaction & monthly subscription fees.
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis sep27,2001
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Is it a Success? The founders account for 80 to 90
percent of revenue. It laid off one-third of its staff of 300.
Revenue $60 million, well short of the projected $100 million.
Covisint will broker the sales of $50 billion but it’s a far cry from the estimated $240 billion.
www.detnews.com/ covisint struggles to survive in emarketplace by doron levin,bloomberg news,august 23, 2002proquest.umi.com/ Covisint’s last chance,christopher koch, dec1 2002www.auto.com archives/ covisint hits rough patch as business falling, jamie butters,december9,2002
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Case Study Conclusion
“Covisint is continuing to fall short of it’s lofty intentions, we think it’s going to disintegrate within the next 18 months.”
Scott Upham, Senior Director J D Power & Associates (December 9, 2002)
Industry experts say the only way to save Covisint is to find a new way to make money – and fast.
www.auto.com/archives/ covisint hits rough patch as business falling, by jamie butters& jeff bennett, dec 9,2002
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Covisint’s Strengths The three founding members
New CEO Harold Kutner
Provides a single platform for suppliers
Online buy gains speed; David Hannon; Purchasing, Boston; Feb 7, 2002; Vol. 131, Iss. 2; pg. 22, 3 pgs
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Covisint’s Weaknesses Suppliers have resisted using
Covisint Relied on tier one suppliers to
bring in lower tiers. Competition. Anti-trust investigation.
Online buy gains speed; David Hannon; Purchasing, Boston; Feb 7, 2002; Vol. 131, Iss. 2; pg. 22, 3 pgsMotorcity shakeup; Christopher Koch; Darwin, Framington; Jan 2002; Vol. 2, Iss. 1; pg. 46, 6 pgs VW Widens Private Exchange; Chuck Moozakis; InternetWeek, Manhasset; Dec 10, 2001, Iss. 888; pg. PG.1
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B2B Best Practices
What have we learned? Review lessons from Covisint,
Petrocosm, and other B2Bs. Conclusion.
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B2B Best Practices
B2B initiative must have full support from top management.
“Because implementing e-business requires radical changes in business activities, it is critical for development teams to receive support from upper management.”
Phan, Dien D.Information Systems Management
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B2B Best Practices
B2B strategy (vision) must be fully integrated into the company’s overall strategy.
Exchanges are a new channel meant to enhance, not replace, existing ways of doing business. In their role of bringing customers and suppliers together, exchanges must not forget that this is just another way to bring customers and suppliers together.
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B2B Best Practices
“e-business should complement rather than cannibalize traditional ways of competing. Companies that use e-business to make traditional business process better will do better that those that invent and implement new combinations of virtual and physical activities. ”
Phan, Dien D.Information Systems Management
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B2B Best Practices
The technology factor
In the 90s, the major barrier for companies to engage in B2B was the ease and speed (connectivity) at which companies could exchange information.
Today, security and the exchange of confidential information (privacy) is considered B2B’s enemy number one.
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B2B Best Practices
The security issue - Covisint “The majority of our parts are
specialized. We would go online with parts that tell our competition what we will be doing 2-3 years from now.”
Hubert Bergmann, VW’s Management Board
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B2B Best Practices
The security issue - PetroCosm
Petrocosm, started by Chevron, also had its share of difficulty convincing other companies in the oil industry to join. Only Texaco, which later merged with Chevron, was willing to join the exchange.
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B2B Best Practices
Use the technology wisely. “Some companies have used internet
technology to shift the basis of competition away from quality, features, and service and toward price, making it harder for anyone in the industry to turn a profit.”
Phan, Dien D.Information Systems Management
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B2B Best Practices
Keep the technology current while keeping good cost control.
“To succeed companies will need to constantly search and implement innovative strategies that capitalize on both the power of the internet and the changes in both traditional and electronic markets.”
(Scarborough and Spatarella, 1998)
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B2B Best Practices
Keep the technology current while keeping good cost control. GM Dealer Advantage: Using the flexibility
of the technology to their advantage, Covisint is branching out into new directions. Through Covisint, GM will link dealers to online catalogs and order forms. “That’s a new space for us, and it expands what we already provide online to manufacturers.”
Wes Arrington, VP Global Accounts for Covisint
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B2B Best Practices
Listen to the users (Buyers and Suppliers). Know what users want and what the market
needs and values and what users will let you do for them.
The tools and/or applications that Covisint offers today are a direct result of mainly the buyer’s input. Covisint’s new CEO promises to listen more to suppliers.
Koch, Christopher, “Covisint’s Last Chance; Can an old guy come out of retirement and save one of the icons of the new economy?”, CIO, December 1, 2002, Vol. 16 Issue 5, pages 62-69.
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B2B Best Practices
Listen to the users.
“Delivering personalized web content. Web content must be accurate, current, and appropriate for each individual customer. Intel works closely with sales forces to ensure that customers are getting what they need and are coming back to the site.”
Phan, Dien D.Information Systems Management
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B2B Best Practices
B2B is not for everyone.The case of AgriPlace.com: An exchange that tried to put the buyers and the farmers together leaving the grain brokers out.
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B2B Best Practices
Implement good e-business education and training.
Covisint provides online training to reduce the number of support calls. Some customers require basic training on how to use the Web.
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B2B Best Practices
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B2B Best Practices
The Matrix – Covisint’s Differentiators
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B2B Best Practices
The Matrix – Covisint’s Differentiators Created a single technical platform
(standardized) so suppliers could easily and cost effectively join the exchange. Keep in mind some of these suppliers are resource-constrained as the profit margins are continually squeezed by the Buyers.
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B2B Best Practices
The Matrix – Covisint’s Differentiators
First to introduce Collaborative Product Development: Design sharing between OEMs and suppliers on the web. Involves the supplier in the design phase of product development.
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ConclusionWhere do we go from here? The statistics paint a grim picture:
1,500 Exchanges in July 2001Only 700 Exchanges in July 2002.
Jorgensen, Barbara “The Shakeout in B2B Exchanges”
Electronic Business, 2003.
B2B is here to stay, however, it is still in its infancy stages and we have seen its growing pains.
Are B2Bs ready to take the place of the purchasing department?
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Any Questions?