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Chapter 12 B2B E-Commerce: Supply Chain Management and Collaborative Commerce Slide 2 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 Slide 3 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 Slide 4 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 Slide 5 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 Slide 6 B2B E-Commerce and Supply Chain Management The total amount of B2B trade in the US in 2011 was about $16 trillion B2B e-commerce contributed about $3.3 trillion of that amount, and by 2015 this should grow to $4.4 trillion in the US A problem with B2B trade is that it is complex and requires significant human intervention which consumes resources that could be better utilized Slide 7 B2B E-Commerce and Supply Chain Management (cont.) It is estimated that the average cost of each corporate purchase order involves $100 in administrative overhead 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 If even just a portion of inter-firm trade could be automated, then literally trillions of dollars might be released for more productive uses Slide 8 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 Slide 9 The Evolution of the Use of Technology Platforms in B2B Commerce (Figure 12.1) Slide 10 Growth of B2B Commerce 2000-2015 (Figure 12.2) Slide 11 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 Slide 12 The Procurement Process (Figure 12.3) Slide 13 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 Slide 14 The Role of Existing Legacy Computer Systems and Enterprise Systems Complicating any efforts to coordinate the many firms in a supply chain is the fact that each firm has its own set of legacy computer systems that cannot easily pass information to other systems Legacy systems generally are older mainframe systems used to manage key processes within a firm Two examples of internal legacy systems are: Materials requirements planning (MRP) systems Enterprise resource planning (ERP) systems Slide 15 Trends in Supply Chain Management and Collaborative Commerce Just-in-time and lean production Eliminate excess inventory to a bare minimum Supply chain simplification Work more closely with a smaller group of strategic supplier firms Supply chain black swans: adaptive supply chains Sustainable supply chains: lean, mean and green Electronic data interchange (EDI) Supports direct commercial transactions among strategically related firms Supply chain management systems Continuously link partner information systems Collaborative commerce Use of digital technologies to collaboratively design, develop, build, and manage products across their life cycle Slide 16 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 Slide 17 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 Slide 18 Pure Types of Net Marketplaces (Figure 12.9) Slide 19 Private Industrial Networks Private industrial networks (PINs) today form the largest part of B2B e-commerce Industry analysts estimate that in 2010, over 50% of B2B expenditures by large firms were for development of private industrial networks PINs are direct descendents of existing EDI networks, and they are closely tied to existing ERP systems used by large firms A PIN is a Web-enabled network for the coordination of trans-organizational business processes (sometimes also called collaborative commerce) Slide 20 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 Slide 21 Private Industrial Network Organization PINs usually focus on a single sponsoring company that owns the network, sets the rules, establishes governance, and invites firms to participate at its sole discretion Under what circumstances is it best to participate in a PIN? Under what circumstances are Net marketplaces a better alternative?