Chapter 6

Chapter 6

Public B2B Exchanges and Support Services

ITEC5611 S. Kungpisdan 2

Outline

• B2B Electronic Exchanges Overview• Third-party Exchanges• Consortium Trading Exchanges• Dynamic Trading• Building and Integrating E-marketplaces• Support Services for E-marketplaces and PRM• B2B Implementation Issues• Managing Exchanges


Roadmap



B2B Electronic Exchanges:An Overview

public e-marketplaces (public exchanges)Trading venues open to all interested parties (sellers and buyers); usually run by third parties

exchange– A many-to-many e-marketplace. Also known as e-

marketplaces, e-markets, or trading exchanges

market makerThe third-party that operates an exchange (and in many cases, also owns the exchange)


Exhibit 6.1 Trading Communities

Market



• Classification Of Exchangesvertical exchange

An exchange whose members are in one industry or industry segment

horizontal exchange

An exchange that handles materials used by companies in different industries


Exhibit 6.2 Classification of B2B Exchanges

Maintenance, Repair, and Operations(materials used in activities that support production)

Purchases involving long-term contracts that usually are based on private negotiations btw sellers and buyers

Purchases of goods and services as they are needed, usually at prevailing market prices


Dynamic Pricing

dynamic pricingA rapid movement of prices over time, and possibly across customers, as a result of supply and demand

• Typical steps in dynamic pricing in most exchanges:1. A company posts a bid to buy a product or an offer to sell one.2. An auction is activated.3. Buyers and sellers can see the bids and offers, but not see who is

making them (anonymity)4. Buyers and sellers interact with bids and offers in real time.5. A deal is struck when there is an exact match btw a buyer and a seller

on price, volume, and others variables e.g. location or quality.6. Once the deal is done, payment and delivery are arranged.



• Functions of Exchanges1. Matching buyers and sellers

2. Facilitating transactions

3. Maintaining exchange policies and infrastructure


RFP = Request for Proposal



• Revenue Models– Transaction fees

• Commission paid by sellers for each transaction they make• However, cannot charge very high, need to find other revenue

sources– Fee for service

• Some sellers prefer to pay service charges rather that transaction fees

– Membership fees• Annual or monthly fee to get some free services or discount

– Advertising fees– Other revenue sources

• Auction fees, license fees for software usage


Roadmap



Third-Party (Trading) Exchanges

• Third-party exchanges are characterized by two contradicting properties:

– They are neutral, because they do not favor either sellers or buyers and

– They do not have a built-in constituency of sellers or buyers, they sometimes have a problem attracting enough buyers and sellers to attain financial viability



market liquidity

The degree to which something can be bought or sold in a marketplace without affecting its price.

– It is measured by the number of buyers and sellers in the market and the transaction volume

Different from a portal, 3rd party exchange not only presents catalogs, but also tries to match buyers and sellers and encourages them to make transactions by providing e-trading floors an rooms


Exhibit 6.6 Supplier Aggregation Model

Need system integration between companies

May be web-based


Exhibit 6.7 Buyer Aggregation Model



• Suitability of Third-Party ExchangesAs in other types of e-marketplaces, the most important key to the success of any third-party exchange is the critical mass of buyers and sellers


Roadmap



Consortium Trading Exchanges

consortium trading exchange (CTE)– A subset of 3rd Party Exchange

An exchange formed and operated by a group of major companies to provide industry-wide transaction services

• Markets operate in three basic types of environments that indicates the third-party exchange that is most appropriate

– Fragmented markets: many buyers, many sellers • Life sciences and food industries• 3rd Party Exchange

– Seller-concentrated markets: few sellers, many buyers • Plastics and transportation• Consortia

– Buyer-concentrated markets: few buyers, many sellers• Automotive, airlines• Consortia



• CTEs are classified by:– Focus on buying or selling – Are vertical or horizontal

• The four types of consortia are:1. Purchasing oriented, vertical

2. Purchasing oriented, horizontal

3. Selling oriented, vertical

4. Selling oriented, horizontal



• Purchasing-Oriented (Procurement) Consortia– Most popular B2B consortium model– Vertical Purchasing-Oriented CTEs: the players are in the

same industry– Horizontal Purchasing-Oriented CTEs: the owner-operators

are large companies from different industries that unite for the purpose of improving the supply chain of MROs used by most industries

– www.corprocure.com.au

• Selling-Oriented Consortia– Most of them are vertical– www.staralliance.com

http://www.corprocure.com.au/

http://www.staralliance.com/


Roadmap



Dynamic Trading: Matching and Auctions

dynamic trading

Exchange trading that occurs in situations when prices are being determined by supply and demand (e.g., in auctions)

– Two major mechanisms: matching and auctions

• Matching—Buyers place their bids and sellers list their asking prices, the market makers conduct the matching

• Auctions—Exchanges offer members the ability to conduct auctions or reverse auctions in private trading rooms


Roadmap



Building and Integrating E-Marketplaces and Exchanges

• Building E-MarketplacesBuilding e-marketplaces and exchanges is a complex process.

– It is usually performed by a major B2B software company e.g. Commerce One, Ariba, Orable, or IBM

– Management consulting companies e.g. PWC, Gartner Group, or McKinsey

– Technology companies e.g. IBM, Oracle, Intel, Microsoft, and SAP



• The Integration Issue– Seamless integration is needed between the third-

party exchange and the participants’ front- and back-office systems is necessary

– In private exchanges, one needs to integrate:• Sell-side: seller’s computing system with that of the

customers

• Buy-side: buyer’s system with that of the suppliers



• Four most common elements of B2B integration solutions1. External communications

• Web/client access: web browser• Data exchange, e.g. EDI over VANs and Internet-based EDI• Direct application integration: require middleware• Shared procedures

2. Process and Information Coordination• Involves the coordination of external communications and internal

information systems• e.g. online sales transaction

3. Use of Web Services • Enable different web-base systems to communicate with each other

using Internet-based protocols4. System and Information Management

• Management of software, hardware, and information


Roadmap



Support Services for E-Marketplaces and PRM

• Directory Services and Search EnginesDirectory services can help buyers and sellers manage the task of finding potential partners

• Partner and Supplier Relationship Managementpartner relationship management (PRM)

Business strategy that focuses on providing comprehensive quality service to business partners

• Partners: customers, suppliers, joint ventures, service providers, etc

supplier relationship management (SRM)A comprehensive approach to managing an enterprise’s interactions with the organizations that supply the goods and services it uses


Exhibit 6.11 SRM from Peoplesoft

See Exhibit W6.3 for more details


Roadmap



B2B Implementation Issues

• Problems with Public Exchanges– Attracting sellers to public exchanges is difficult for

these reasons:• Transaction fees

– Large suppliers do not want to pay transaction fees when they engage in transactions with their existing customers.

• Sharing information• Cost savings

– not much cost saving for low cost items

• Recruiting suppliers– Large supplier may have their own e-purchasing capabilities for

their customers

• Too many exchanges– Competitors believe that they can do better job than first movers



• Supply Chain Improvers– Public exchanges prepare the entire necessary

infrastructure and ask suppliers to just “plug in” and start selling• But company is also interested in streaming their

internet supply chain, not just plugging in

– Focusing on supply chain savings rather than on buy/sell savings can be very beneficial to exchanges



• Problems with Private Exchanges– Private exchanges are usually run by one large

company; trust becomes an issue


Roadmap



Managing Exchanges

• Centralized Management– Managing exchanges and providing services to participants

on an individual basis is very expensive– So, “families” of jointly-managed exchanges are more cost-

effective– One market maker can build and operate several exchanges

from a unified, centralized location– Dealing with 3rd-party vendors that provide logistic services

and payment systems may be more efficient if a vendor is supplying services to many exchanges


Managing Exchanges

• Critical Success Factors for Exchanges– Early liquidity

• Liquidity requires having a sufficient number of participants and amount of transaction volume

– The right owners or partners– The right governance

• Good management and effective operations• Governance provides rules for the exchange, minimize

conflicts, and supports decision making– Openness

• Must be open to all, from both organizational and technological perspectives

• Commitment to open standards– A full range of services

Questions?

Next lecture:E-Supply Chain, Collaborative Commerce, Intrabusiness EC, and Corporate Portals

Chapter 6

Documents

Transcript of Chapter 6