online file w5.1 generations of b2b e-commerce...online file w5.1 generations of b2b e-commerce...

ONLINE FILE W5.1GENERATIONS OF B2B E-COMMERCE

Publishand Promote

1stGeneration

1995

OnlineOrderingB2C, B2BAuctions

2ndGeneration

1997

Business Value

E-MarketplacesExchanges

Personalizeand Customize

E-Government

Multichannel

E-Learning

E-CRM

MobileCommerce

Supply ChainImprovements

CollaborativeCommerce

3rdGeneration

2000

4thGeneration

2001

5thGeneration

2002 and Beyond

IntelligentSystems

Expert SalesSystems

WebServices

RFID andOthers

Internal/ExternalBusinessProcess

Management

Integration

Collaborationwith Suppliers

and Buyer

Non-ITApplication

Management

EXHIBIT W5.1.1

M05_TURB9235_03_SE_WC05.QXD 8/13/10 8:16 PM Page W5.1

W5.2 Part 3: Business-to-Business E-Commerce

REFERENCES FOR ONLINE FILE W5.2bigboxx.com (accessed May 2009).Reuters. “Office Depot Announces Strategic Alliance

with bigboXX.com to Serve International Accounts

in Hong Kong.” June 5, 2008. reuters.com/article/pressRelease/idUS131056+05-Jun-2008+BW20080605 (accessed April 2009).

ONLINE FILE W5.2 Application Case

BUYING FROM VIRTUAL SELLER BIGBOXX.COMBigboXX.com (bigboxx.com), based in Hong Kong, is aB2B retailer of office supplies. It has no physical storesand sells products through its online catalog; thus,bigboXX.com is an online intermediary. The company hasthree types of customers: large corporate clients,medium-sized corporate clients, and small office/homeoffices (SOHOs). It offers more than 8,000 items from300 suppliers. BigboXX.com’s goal is to sell its productsin various countries in Southeast Asia.

The company’s portal is attractive and easy to use,and includes tutorials that instruct users on how to usethe Web site. Once registered, the user can start shop-ping using the online shopping cart. Users can look foritems by browsing through the online catalog or bysearching the site with a search engine. The orderingsystem is integrated with an SAP-based back-office sys-tem. Using its own trucks and warehouses, deliveriesscheduled online are made within 24 hours.

Users can pay by cash or by check (upon delivery),via automatic bank drafts, by credit card, or by purchasingcard. Soon users will be able to pay through Internet-based direct debit, by electronic bill presentation and pay-ment, or by Internet banking.

BigboXX.com provides numerous value-added servicesfor customers. Among these are the ability to check itemavailability in real time; the ability to track the status ofeach item in an order; promotions and suggested itemsbased on customers’ user profiles; customized prices forevery product, for every customer; control and central-approval features; automatic activation at desired time

intervals of standing orders for repeat purchasing; and alarge number of Excel reports and data, including compara-tive management reports.

Bigboxx.com began operations in spring 2000. By theend of 2006, it had over 8,500 registered customers. By2007, bigboXX.com also offered Print Center for digital andoffset printing, Premium Center that sources gift items forpromotions, the Records Management Service that offerssecure document storage solutions, and the OfficeRelocation Service that handles a full-range of relocationarrangements for offices.

In 2008, bigboXX and Office Depot formed a strategicalliance to provide office products and services to corpo-rate customers in Hong Kong, a key market for many globalcompanies. The relationship between Office Depot andbigboXX.com will provide a complete procurement solutionfor customers in Hong Kong.

Questions1. Enter bigboxx.com and staples.com, and compare

their B2B offerings and purchase processes. (Take the tutorial at bigboxx.com.) What supportservices are provided?

2. Someday customers may become accustomed to buying office supplies online. Then, they may try to buy directly from the manufacturers. Will bigboXX.com or Staples.com then bedisintermediated? Why or why not?


Chapter Five: B2B E-Commerce W5.3


WHIRLPOOL B2B TRADING PORTALWhirlpool (whirlpool.com) is a $19 billion global corpora-tion based in Benton Harbor, Michigan. It is in the com-pany’s best interest to operate efficiently and to offer as much customer service for the members (businesspartners) of its selling chain as possible. It is a complexjob, because the partners are located in 170 countries.Middle-tier partners, who comprise 25 percent of the totalpartner base and 10 percent of Whirlpool’s annual revenue,were submitting their orders by phone or fax because theywere not large enough to have system-to-system computerconnections direct (such as EDI) to Whirlpool.

To improve customer service for these dealers,Whirlpool developed a B2B trading partner portal (WhirlpoolWeb World), using IBM e-business solutions. The technolo-gies enable fast, easy Web self-service ordering processes.Using these self-service processes, Whirlpool was able to cutthe cost per order to under $5—a savings of 80 percent.

The company tested ordering via the Web by develop-ing a portal for low-level products. It was so successfulthat Whirlpool created a second-generation portal, whichallows middle-tier trade partners to place orders and tracktheir status through a password-protected site.

Simultaneously, the company implemented SAP R/3for order entry, which is utilized by the middle-tier

partners on the second-generation portal. The companyalso is using IBM’s Application Framework for e-business,taking advantage of its rapid development cycles and asso-ciated cost reductions.

Whirlpool’s global platform provides its operationswith resources and capabilities few other manufacturerscan match. Whirlpool’s global procurement, product devel-opment, and information technology organizations helpthe company’s operations reduce costs, improve efficien-cies, and introduce a continuous stream of relevantinnovation to consumers.

Using the same IBM platform, Whirlpool launched aB2C site for U.S. customers for ordering small appliancesand accessories. The site was so successful that the com-pany realized a 100 percent ROI in just five months.

Questions1. How do Whirlpool’s customers benefit from the portal?

2. What are the benefits of the trading portal forWhirlpool?

3. Relate the B2B sell side to a B2C Webstore.

REFERENCE FOR ONLINE FILE W5.3IBM.“Whirlpool’s B2B Trading Portal Cuts per Order Cost

Significantly.” White Plains, NY: IBM CorporationSoftware Group, Pub. G325-6693-00, 2000.

An extranet uses the TCP/IP protocol to link intranets in different locations (as shown inExhibit W5.4.1). Extranet transmissions are usually conducted over the Internet, whichoffers little privacy or transmission security. Therefore, it is necessary to add securityfeatures. This is done by creating tunnels of secured data flows, using cryptography andauthorization algorithms, to provide secure transport of private communications. AnInternet with tunneling technology is known as a virtual private network (VPN) (seeen.wikipedia.org/wiki/Virtual_private_network).

Online File W5.4 Extranets

extranetA network that uses avirtual private network tolink intranets in differentlocations over the Internet;an “extended intranet.”

(continued)



Extranets provide secured connectivity between a corporation’s intranets and theintranets of its business partners, materials suppliers, financial services, government, andcustomers. Access to an extranet is usually limited by agreements of the collaborating par-ties, is strictly controlled, and is available only to authorized personnel using a secure pass-word and log-in. The protected environment of an extranet allows partners to collaborateand share information, and to perform these activities securely.

Because an extranet allows connectivity between businesses through the Internet, itis an open and flexible platform suitable for B2B. To increase security, many companiesreplicate the portions of their databases that they are willing to share with their businesspartners and separate them physically from their regular intranets. However, even separateddata need to be secured. (See Chapter 9 for more on EC network security.)

The benefits of extranets fall into five categories:

1. Enhanced communications. The extranet enables improved internal communications; improved business partnershipchannels; effective marketing, sales, and customer support; and facilitated collaborative activities support.

2. Productivity enhancements. The extranet enables just-in-time information delivery, reduction of information overload,productive collaboration between work groups, and training on demand.

3. Business enhancements. The extranet enables faster time-to-market, potential for simultaneous engineering andcollaboration, lower design and production costs, improved client relationships, and creation of new businessopportunities.

Online File W5.4 (continued)

OtherBusinessPartners,

Government

My SuppliersA, B, C . . .

Intranets

Intranets

Intranet

IntranetInternet

with VPN

Internetwith VPN

Internetwith VPN

My Customers

B2B

My Company

My Field Employees

EXHIBIT W5.4.1 The Structure of an Extranet

virtual private network(VPN)A network that createstunnels of secured dataflows, using cryptographyand authorizationalgorithms, to providesecure transport ofprivate communicationsover the public Internet.

(continued)



4. Cost reduction. The extranet results in fewer errors, improved comparison shopping, reduced travel and meeting timeand cost, reduced administrative and operational costs, and elimination of paper publishing costs.

5. Information delivery. The extranet enables low-cost publishing, leveraging of legacy systems, standard delivery sys-tems, ease of maintenance and implementation, and elimination of paper-based publishing and mailing costs.

Additional advantages of an extranet include ready access to information, ease of use, freedom of choice, moderatesetup cost, simplified workflow, lower training cost, flexibility, more customer loyalty, and better group dynamics. There arealso disadvantages, such as difficulty in justifying the investment (measuring benefits and costs), high user expectations,and drain on resources. See Chow (2004) for success factors of using extranets in e-supply chains.


REFERENCES FOR ONLINE FILE W5.4All Business. “The Benefits of Extranets.” 2009.

allbusiness.com/technology/computer-networking/1283-1.html (accessed April 2009).

Chow, W. S. “An Exploratory Study of the Success Factorsfor Extranet Adoption in E-Supply Chain.” Journal of Global Information Management ( January–March2004).

The vast majority of B2B transactions are supported by EDI, XML, and extranets. Here we describe EDI and its transition to the Internet platform. Extranets were covered in Online File W5.4.

Traditional EDIEDI is a communication standard that enables the electronic transfer of routine documents, such as purchasing orders,between business partners. It formats these documents according to an agreed-upon structure. An EDI implementation isa process in which two or more organizations determine how to work together more effectively through the use of EDI.For other organizations, it is an internal decision spurred by the desire for competitive advantage. EDI is basically acomputer-to-computer messaging system with a minimum of human intervention. For a comparison of EDI versus no EDI,see Exhibit W5.5.1.

EDI often serves as a catalyst and a stimulus to improve the business processes that flow between organizations. Itreduces costs, delays, and errors inherent in a manual document-delivery system:

◗ Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions. Theseinclude purchase orders, invoices, credit approvals, shipping notices, confirmations, and so on.

◗ Data-formatting standards. Because EDI messages are repetitive, it makes sense to use formatting (coding) standards.Standards can shorten the length of the messages and eliminate data entry errors, because data entry occurs only once.EDI deals with standard transactions, whereas e-mail is more open. EDI uses a special standard language and is secure,whereas e-mail is not. When a user enters data into the EDI system, the data are automatically converted to EDI language.

Online File W5.5 From Traditional to Internet-Based EDI

(continued)




Purchasing

Accounting/Finance

Mail Room

Order Fulfillment

Accounting/Finance

Mail Room

Sales

PaymentDelivery

Order ConfirmationBill Delivery

PODelivery

Receiving Order Fulfillment

POStandardized

PO Form

Start

Order Placer

ShippingReceiving

Buyer

Shipping

Seller

Without EDI

ProductDelivery

Buyer

Shipping

Seller

With EDI

ProductDelivery

PO

Start

DepartmentalBuyer

EDI Converter

Computer ConverterGeneratesStandardizedPO Form

InstantData to• Sales• Inventory• Manufacturing• Engineering

Invoice FlashReport

EXHIBIT W5.5.1 Purchase Order Fulfillment with and without EDI

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If there are missing or incorrect data, the EDI converter offers assistance. EDI fosters collaborative relationships andstrategic partnerships. In the United States and Canada, data are formatted according to the ANSI X.12 standard or theUCS code. An international standard developed by the United Nations is called EDIFACT (see bambooweb.com).

◗ EDI translators. An EDI translator automatically translates data. The software organizes information into a standard format.

EDI has been around for about 30 years in the non-Internet environment. To distinguish it from Internet-based EDI,we call EDI on the non-Internet platform traditional EDI.

How Does EDI Work?The following example illustrates how EDI works in a hospital. Information flows from the hospital’s information systemsinto an EDI station that includes a PC and an EDI translator. From there, the information moves, using a modem if neces-sary, to a value-added network (VAN). The VAN transfers the formatted information to a vendor(s), where an EDI translatorconverts it to a desired format.

How EDI Cuts Costs of Ordering SuppliesAn average hospital generates about 15,000 purchase orders each year, at a processing cost of about $70 per order. TheHealth Industry Business Communication Council estimates that EDI can reduce this cost to $4 per order—generatingyearly savings of $840,000 per hospital. The required investment ranges between $8,000 and $15,000, which includespurchase of a PC with an EDI translator, a modem, and a link to the mainframe-based information system. The hospitalcan have two or three ordering points. These are connected to a VAN, which connects the hospital to its suppliers (seeExhibit W5.5.2). The system also can connect to other hospitals or to centralized joint purchasing agencies.


HospitalInformation

System

Pharmacy:PC/EDI

Translator

Dietary:PC/EDI

Translator

PC/EDIModem VAN

MaterialManagement:

PC/EDITranslator

Hospitals

PC to Mainframe Links

Telephone Lines

PC/EDI Translator

MaterialsSupplier’sSystem

Mainframe

PC/EDI Translator

DietarySupplier’sSystem

Other Hospitals’PC/EDITranslators

PC/EDI Translator

PharmaceuticalSupplier’sSystem

Mainframe

Mainframe

EXHIBIT W5.5.2 How EDI Cuts the Cost of Ordering Supplies

(continued)



Applications of Traditional EDITraditional EDI has changed the business landscape, triggering new definitions of entire industries. It is used extensively bylarge corporations, sometimes in a global network, such as the one operated by General Electric Information System (whichhas over 100,000 corporate users). Well-known retailers such as Home Depot and Walmart would operate very differentlywithout EDI, because it is an integral and essential element of their business strategies. Thousands of global manufacturers,including Procter & Gamble, Levi Strauss, Toyota, and Unilever, have used EDI to redefine relationships with their customersthrough such practices as quick-response retailing and just-in-time (JIT) manufacturing. These highly visible, high-impactapplications of EDI by large companies have been extremely successful. The benefits of EDI are listed next.

Benefits of EDI

◗ EDI enables companies to send and receive large amounts of routine transaction information quickly around the globe.◗ Computer-to-computer data transfer reduces the number of errors.◗ Information can flow among several trading partners consistently and freely.◗ Companies can access partners’ databases to retrieve and store standard transactions.◗ EDI fosters true (and strategic) partnership relationships because it involves a commitment to a long-term investment

and the refinement of the system over time.◗ EDI creates a complete paperless transaction processing system (TPS) environment, saving money and increasing efficiency.◗ Payment collection can be shortened by several weeks.◗ Data may be entered offline, in batch mode, without tying up ports to the mainframe.◗ When an EDI document is received, the data may be used immediately.◗ Sales information is delivered to manufacturers, shippers, and warehouses almost in real time.◗ EDI can save companies a considerable amount of money.

Limitations of Traditional EDIHowever, despite the tremendous impact of traditional EDI among industry leaders, the set of adopters represented only asmall fraction of potential EDI users. In the United States, where several million businesses participate in commerce everyday, fewer than 100,000 companies have adopted traditional EDI. Furthermore, most of these companies have had only asmall number of their business partners on EDI, mainly due to its high cost. Therefore, in reality, few businesses have ben-efited from EDI. The major factors that held back more universal implementation of traditional EDI include the following:

◗ Significant initial investment is needed, and ongoing operating costs are high.◗ Business processes must be restructured to fit EDI requirements.◗ A long start-up period is needed.◗ EDI requires use of expensive private VANs.◗ EDI has a high operating cost.◗ Multiple EDI standards exist, so one company may have to use several standards in order to communicate with different

business partners.◗ The system is difficult to use.◗ A converter is required to translate business transactions to EDI code.◗ The system is inflexible; it is difficult to make quick changes, such as adding business partners.

These factors suggest that traditional EDI—relying on formal transaction sets, translation software, and VANs—is notsuitable as a long-term solution for most corporations. Therefore, a better infrastructure was needed; Internet-based EDI issuch an infrastructure. For details, see Harris and Chen (2006).


(continued)



Internet-Based EDIInternet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the case and review the various types ofWeb-based EDI.

Why Internet-Based EDI?When considered as a channel for EDI, the Internet appears to be the most feasible alternative for putting online B2Btrading within reach of virtually any organization, large or small. Firms should use Internet-based EDI for several reasons:

◗ The Internet is a publicly accessible network with few geographical constraints. Its largest attribute, large-scale connec-tivity (without the need for any special company networking architecture), is a seedbed for growth of a vast range of busi-ness applications.

◗ The Internet’s global network connections offer the potential to reach the widest possible number of trading partners ofany viable alternative currently available.

◗ Using the Internet instead of a VAN can cut communication costs by over 50 percent.◗ Using the Internet to exchange EDI transactions is consistent with the growing interest in delivering an ever-increasing

variety of products and services electronically, particularly via the Web.◗ Internet-based EDI can complement or replace many current EDI applications.◗ Internet tools such as browsers and search engines are very user-friendly, and most employees today know how to use them.◗ Internet-based EDI has several functionalities not provided by traditional EDI, such as collaboration, workflow, and search

engine capabilities.

Types of Internet-Based EDIThe Internet can support EDI in a variety of ways:

◗ Internet e-mail can be used to transport EDI messages in place of a VAN. To this end, standards for encapsulating the mes-sages within Secure Internet Mail Extension (S/MIME) have been established.

◗ A company can create an extranet that enables its trading partners to enter information into a Web form, the fields ofwhich correspond to the fields in an EDI message or document.

◗ Companies can use a Web-based EDI hosting service in much the same way that companies rely on third parties to hosttheir EC sites. Netscape Enterprise is an example of the type of Web-based EDI software that enables a company to pro-vide its own EDI services over the Internet. Harbinger Express is an example of a company that provides third-partyhosting services.

◗ Internet-based EDI is frequently XML based to ease integration among business partners.

The Prospects of Internet-Based EDICompanies that used traditional EDI in the past have had a positive response to Internet-based EDI. With traditionalEDI, companies have to pay for network transport, translation, and routing of EDI messages into their legacyprocessing systems. The Internet simply serves as a cheaper alternative transport mechanism. For a discussion, see Meadors (2005). The combination of the Web, XML, and Java makes EDI worthwhile even for small, infrequenttransactions. Whereas EDI is not interactive, the Web and Java were designed specifically for interactivity as well asease of use.

The following examples demonstrate the benefits of Internet-based EDI:

◗ CompuCom Systems was averaging 5,000 transactions per month with traditional EDI. In just a short time after thetransition to Web-based EDI, the company was able to average 35,000 transactions. The system helped the companyto grow rapidly.


(continued)



◗ Atkins Carlyle Corp., which buys from 6,000 suppliers and has 12,000 customers in Australia, is a wholesaler of industrial,electrical, and automotive parts. The large suppliers were using three different EDI platforms. By moving to an Internet-based EDI, the company is able to collaborate with many more business partners, reducing transaction costs by about $2per message.

◗ Procter & Gamble replaced a traditional EDI system that had 4,000 business partners with an Internet-based system thathas tens of thousands of suppliers.

Note that many companies no longer refer to their collaborative systems as EDI. However, the properties of EDI areembedded into new e-commerce initiatives such as collaborative commerce and electronic exchanges.


REFERENCES FOR ONLINE FILE W5.5Harris, A. L., and C. Chen. “Traditional and Internet

EDI Adoption Barriers,” in Khosrow-Pour (2006).Khosrow-Pour, M. (Ed.). Encyclopedia of E-Commerce,

E-Government, and Mobile Commerce, Hershey, PA:Idea Group Reference, 2006.

Meadors, K. “Secure Electronic Data Interchange overthe Internet.” IEEE Xplore, May/June 2005.


CISCO CONNECTION ONLINECustomer ServiceCisco began providing electronic support in 1991 usingvalue-added networks (VANs). The first applications offeredwere software downloads, defects diagnoses, and technicaladvice. In spring 1994, Cisco moved its system to the Weband named it Cisco Connection Online (CCO). By 2004,Cisco’s customers and reseller partners were logging ontoCisco’s Web site over 2 million times a month to receivetechnical assistance, place and check orders, or downloadsoftware. The online service has been so well received thatnearly 85 percent of all customer service inquiries and 95 percent of software updates are delivered online. Theservice is delivered globally in 16 languages. CCO isconsidered a model for B2B success, and several bookshave been written about it.

Online Ordering by CustomersVirtually all of Cisco’s products are made to order. BeforeCCO, ordering a product was a lengthy, complicated, anderror-prone process because it was done by fax or by “snailmail.” Cisco began deploying Web-based commerce tools in

July 1995, and within a year its Internet Product Centerallowed users to configure and purchase any Cisco productover the Web. Today, a business customer’s engineer cansit down at a PC, configure a product, and find out imme-diately if there are any errors in the configuration (somefeedback is given by intelligent agents).

By providing online pricing and configuration tools tocustomers, 99 percent of orders are now placed throughCCO, saving time for both Cisco and its customers. In thefirst five months of online ordering operations in 1996,Cisco booked over $100 million in online sales. This figuregrew to $4 billion in 1998, to over $8 billion in 2002, andto about $12 billion in 2005 (Cisco Annual Report 2005).(Note: Data for Cisco’s online and offline sales are not sep-arated after 2005.)

Tracking Order StatusEach month Cisco used to receive over 150,000 order-statusinquiries such as, “When will my order be ready?” “Howshould the order be classified for customs?” “Is the producteligible for NAFTA agreement?” “What export control issues

(continued)



ONLINE FILE W5.6 (continued)

apply?” Cisco provides self-tracking and FAQ tools so thatcustomers can find the answers to many of their questionsby themselves. In addition, the company’s primary domes-tic and international freight forwarders update Cisco’s data-base electronically about the status of each shipment. CCOcan record the shipping date, the method of shipment, andthe current location of each product. All new information ismade available to customers immediately. As soon as anorder ships, Cisco notifies the customer via e-mail.

BenefitsCisco reaps many benefits from the CCO system. The mostimportant benefits include:

◗ Reduced operating costs for order taking. By taking itsorder process online in 1998, Cisco has saved $363 millionper year, or approximately 17.5 percent of its total operat-ing costs. This is due primarily to increased productivity ofthe employees who take and process orders.

◗ Improved quality. The system facilitates the Six Sigmamission of Cisco.

◗ Enhanced technical support and customer service. Withmore than 85 percent of its technical support and customerservice calls handled online, Cisco’s technical support pro-ductivity has increased by 250 percent per year.

◗ Reduced technical support staff cost. Online technicalsupport has reduced technical support staff costs byroughly $125 million each year.

◗ Reduced software distribution costs. Customersdownload new software releases directly from Cisco’ssite, saving the company $180 million in distribution,packaging, and duplicating costs each year. Having prod-uct and pricing information on the Web and Web-basedCD-ROMs saves Cisco an additional $50 million annuallyin printing and distributing catalogs and marketingmaterials to customers.

◗ Faster service. Lead times were reduced from 4 to 10 daysto 2 to 3 days.

The CCO system also benefits customers. Cisco cus-tomers can configure orders more quickly, immediatelydetermine costs, and collaborate much more rapidly andeffectively with Cisco’s staff. Also, customer service andtechnical support are faster.

In 2006, Cisco moved to selling its hardware (routersand switches and VoIP) and the software that powers themseparately. This unbundling gives customers more flexibil-ity (see Hoover 2006).

Questions1. List the capabilities of the Cisco Online system.

2. What are the benefits of the system to Cisco?

3. What are the benefits to Cisco’s customers?

REFERENCES FOR ONLINE FILE W5.6Cisco Annual Report. Cisco Systems, 2005. cisco.com/web/

about/ac49/ac20/ac19/ar2005/index.html (accessedMay 2009).

Hoover, J. N. “The Cisco Premium.” InformationWeek,July 31–August 7, 2006.


BOEING’S PART MARKETPLACEBoeing (boeing.com) is the world’s largest maker of air-planes for commercial and military customers. It also playsthe role of intermediary in supplying replacement andmaintenance parts to airlines. Unlike other online B2Bintermediaries, revenue from its intermediary activitiesmay be a minor concern to Boeing, which makes most of

its revenue from selling airplanes. The major goal ofBoeing’s intermediary parts market, called Part Analysisand Requirement Tracking (PART), is supporting customers’maintenance needs as a customer service.

The objective of PART is to link airlines that needmaintenance parts with suppliers who are producing the

(continued)




parts for Boeing aircraft (see boeing.com/commercial/spares/part_page.html). Boeing’s online strategy is to pro-vide a single point of online access through which airlines(the buyers of Boeing’s aircraft) and the maintenance andparts providers (Boeing’s suppliers) can access data aboutthe parts they need. These data might come from the air-frame builder, the component supplier, the engine manu-facturer, or the airline itself. Thus, Boeing is acting as anintermediary between the airlines and the parts suppliers.With data from 300 key suppliers of Boeing’s airplaneparts, Boeing’s goal is to provide its customers with one-stop shopping for online maintenance information andordering.

The Spare Parts Business Using Traditional EDIOrdering spare parts had been a multistep process formany of Boeing’s customers. For example, an airline’smechanic informed the purchasing department of his com-pany that a specific part was needed; the purchasingdepartment approved the purchase order and sent it toBoeing by phone or fax. The mechanic did not need toknow who produced the part because the aircraft was pur-chased from Boeing as one body. However, Boeing had tofind out who produced the part and then ask the producerto deliver the part to the customer (unless Boeing hap-pened to keep an inventory of that part).

The largest airlines began to streamline the orderingprocess about 20 years ago. Because of the volume andregularity of their orders, they established EDI connectionswith Boeing over VANs. Not all airlines were quick to fol-low suit, however. It took until 1992 to induce 10 percentof the largest customers, representing 60 percent of thevolume, to order through EDI. The numbers did not changemuch until 1996 due to the cost and complexity of VAN-based EDI.

Debut of PART on the InternetBoeing viewed the Internet as an opportunity to encour-age more of its customers to order parts electronically.With the initial investment now limited to a standard PCand basic Internet access, even its smallest customerscan now participate in PART. Because of its interactivecapabilities, many customer service functions that werehandled over the telephone are now handled over theInternet.

In November 1996, Boeing introduced its PART pageon the Internet, giving its customers around the world theability to check parts availability and pricing, order parts,

and track order status, all online. Less than a year later,about 50 percent of Boeing’s customers used PART forparts orders and customer service inquiries. In its first yearof operation, the Boeing PART portal handled over half amillion inquiries and transactions from customers aroundthe world. Boeing’s spare parts business processed about20 percent more shipments per month in 1997 than it didin 1996 with the same number of data entry people. Inaddition, as many as 600 phone calls a day to customerservice staff were eliminated because customers hadaccess to information about pricing, availability, and orderstatus online. The use of PART online resulted in fewerparts being returned due to administrative errors.Furthermore, the service may encourage airlines to buyBoeing aircraft the next time they make an aircraft pur-chase. (For a demo of PART, visit boeing.com.)

As a result of PART’s success, Boeing started a com-plementary EC initiative called Boeing On-Line Data(BOLD), which enables mechanics and technicians at theairport to access the technical manuals they need forrepairs. These manuals are now available in digital form,and mechanics and technicians can access them via wireline or wireless devices. In May 2000, Boeing alsolaunched a new e-business site for airline customers basedon PART and BOLD.

By 2009, Boeing’s PART Web page included up-to-dateparts information, such as availability, price, and whether apart is interchangeable with another part. Orders areacknowledged and processed in seconds. Orders can beplaced or revised on the site in real time. Multiple orderscan be analyzed in order to simplify the procurementprocess. Security safeguards allow specification of the levelof personnel authorized to place orders. Other optionsavailable include ordering as many as 25 items at a time;getting a copy of the invoice directly from the PART page;automatically requesting a quote for parts that are notpriced that is returned by e-mail; and, obtaining customsinvoice/packing sheet for international shipping.

Questions1. What motivated Boeing to create PART?

2. What motivated the move from EDI to the Internet?

3. List and briefly discuss the benefits of PART to Boeing.

4. List and briefly discuss the benefits of PART to Boeing’s customers.



REFERENCES FOR ONLINE FILE W5.7“Boeing Launches New E-Business Web Site.” Aerotech

News and Review—Journal of Aerospace and DefenseIndustry News (May 12, 2000).

Boeing. “Boeing Part Page: Fast, Easy Access to thePart You Want and Need.” 2009. boeing.com/ commercial/aviationservices/brochures/Boeing_Part_Page.pdf (accessed May 2009).


HOW THE STATE OF PENNSYLVANIA SELLS SURPLUS EQUIPMENTFor many years, the Pennsylvania Department ofTransportation (DOT) used a traditional offline auctionprocess. As of October 2003, the state is holding onlineauctions to sell its surplus heavy equipment. The old, livein-person auction system generated about $5 million ayear. Using the Internet, the DOT is generating at least a20 percent increase in revenue.

The Commonwealth of Pennsylvania conducted its ini-tial online sale of surplus DOT items in October 2003. Thesale consisted of 77 items (including 37 dump trucks).Onsite inspection was available twice during the two-weekbidding period. The online sale allowed the Commonwealthof Pennsylvania to obtain an average price increase of 20 percent, while reducing labor costs related to holding atraditional on-site sale. On high-value specialty items(i.e., a bridge inspection crane and a satellite van), resultsexceeded the estimated sale prices by over 200 percent.

The auction was conducted by AssetAuctions(assetauctions.com). The results of the auction were as follows:

◗ Total sales: $635,416.03.◗ Half of the bidding activity occurred in the final two days.

◗ Every lot received multiple bids.◗ Overtime bidding occurred in 39 lots.◗ 174 bidders from 19 states and Mexico made about

1,500 bids in five days.◗ 47 different buyers participated.

The Commonwealth of Pennsylvania now sells surplusequipment and properties using both AssetAuctions andeBay.

Questions1. Why is heavy equipment amenable to such auctions?

2. Why did the state generate 20 percent more in rev-enues with the online auction?

3. Why do you need an intermediary to conduct suchan auction?

4. Comment on the number of bidders and bids with an online auction as compared to an offlineauction.

REFERENCES FOR ONLINE FILE W5.8asset-auctions.com (accessed July 2009).Commonwealth of Pennsylvania. “Pennsylvania’s Surplus

Property Programs.” 2006. portal.state.pa.us/portal/

server.pt?open=512&objID=1393&&SortOrder=16&level=2&parentid=1231&css=L2&mode=2(accessed July 2009).



Online File W5.9 The E-Procurement Process: A Buyer’s View

Search for Vendors and Products

E-catalogs, brochures, conventions, exhibits, telephone calls, visits.

Qualify Vendors

Which vendors can we dobusiness with?Research firms for financial stability and credit history.

Select a Market Mechanism

Private, public, auctions (tendering) exchange, bartering(Tendering system hasa special process.)

Compare and Negotiate

Compare price, financing, delivery, quality, etc.Select a vendor.

Initiate a Purchase Order (PO)

Fill in electronic form or trigger ready order.

Arrange a Pickup or Receive Shipment

Check shipping documents, billing, quality.

Make Payments

Approve payment.Arrange money transfer.

Make a Purchase Arrangement

(Individual or committee)Have a contract.Arrange payment.

Pre-Purchase Activities After-Purchase Activities

EXHIBIT W5.9.1



E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance tochange is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at areasonable cost. For details, see en.wikipedia.org/wiki/E-procurement.

MROs often are the initial target for e-procurement. However, improvements can be made in the purchasing of directmaterials as well. All existing manual processes of requisition creation, requests for quotation, invitation to tender,purchase order issuance, receiving goods, and making payments can be streamlined and automated. However, to mosteffectively implement such automated support, the people involved in procurement must collaborate with the suppliersalong the supply chain, as we will describe in Chapter 6.

Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part isimplementing it. The components of e-procurement systems are shown in Exhibit W5.10.1. For a model that simplifies theprocurement process by performing tasks electronically, see Podlogar (2006).

Online File W5.10 Implementing E-Procurement

EXHIBIT W5.10.1 Potential E-Procurement ComponentsModule Components

Catalog Management Module• Facilitates the creation of products, subassemblies, and

components in a hierarchical manner.

Collaborative Planning Module• Supports collaborative planning between buyers

and suppliers.

Online Purchase Module• Supports both systematic and spot procurement

for direct and indirect materials and for contracts (for both goods and services).

Purchase-Order Handling Module• Enables buyers to place purchase orders via on/off item

master, reverse auction, contract purchasing, and spotmarket requisition.

• Catalog manager• Catalog exchanger• Approved vendor list (AVL) editor

• Request for Quote (RFQ)• Request for Proposal (RFP)• Demand forecaster• Contract manager• Inventory manager• Information flow controller• Real-time integration to project management,

change management, and financials• Management of compliance with quality and safety

standards

• Purchase via contracts• Purchase from catalog• Reverse auction service for direct/indirect

materials• Reverse auction service for contracts• Auction service

• Purchase order manager• Demand aggregator• Consignment manager• JIT order manager

(continued)



The following are some of the major implementation issues that companies must consider when planning e-procurementinitiatives:

◗ Fitting e-procurement into the company’s EC strategy. For example, suppose the strategy is outsourcing. In this case,e-procurement can be done in an exchange, or the customer can buy at the sellers’ Web sites.

◗ Reviewing and changing the procurement process itself. E-procurement may affect the number of purchasingagents, where they are located, and how purchases are approved. The degree of purchasing centralization also may beaffected.

◗ Providing interfaces between e-procurement and integrated enterprise-wide information systems, such as ERP orsupply chain management. If the company does not have such systems, it may be necessary to do some restructuringbefore moving to e-procurement.

◗ Coordinating the buyer’s information system with that of the sellers. Sellers have many potential buyers. Forthis reason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an inte-gration-oriented procurement system for its buyers. The SKF information system is designed to make it easier for theprocurement systems of others (notably the distributors in other countries) that buy the company’s bearings and seals


Sources: Compiled from e-jing.net and oracle.com (both accessed May 2009).

(continued)

EXHIBIT W5.10.1 (continued)

• Document indexing• SML exchanger• Document version controller

• Periodical reports• Customized reports• Statistical analysis

• Message/task center• Status of procurement operations• Customized exceptional alerts• Smart search engine• Online negotiation/discussion service

• Company master data organizer• Product group builder• Workflow designer• Authorization matrix• Look and feel designer• User/department profile organizer

Document Service Module• Facilitates a broad range of services for procurement

documentation such as RFQ, RFP, PO, goods receipt,and accounts payable.

Historical Performance Service Module• Provides easy access to historical statistics of all

transactions.

Information Service Module• Provides a unified information and message service

that allows users to receive/send e-mails and viewstatus of procurement activities.

System Administration Module• Provides tools that enable the company to control

procurement activities.



to interface with the SKF system. The SKF system allows distributors and large buyers to gain real-time technicalinformation on the products, as well as details on product availability, delivery times, and commercial terms andconditions.

◗ Consolidating the number of regular suppliers and integrating with their information systems and, if possible, withtheir business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolvedand will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the companyto get a quantity discount. Collaboration with each supplier also will be enhanced.

E-SourcingWhen implementing e-procurement, companies also should evaluate e-sourcing, the processesand tools that electronically enable any activity in the procurement process, such as quota-tion/tender requests and responses, e-auctions, online negotiations, and spending analyses(see ariba.com/solutions/sourcing.cfm and Johnson and Klassen 2005). E-sourcing is theautomation of strategic sourcing.

Strategic sourcing is the process of identifying opportunities, evaluating potential sources,negotiating contracts, and managing supplier relationships to achieve corporate goals, such ascost reductions and increased quality and service as well as reductions in sourcing cycle times.E-sourcing is about removing unnecessary cost (i.e., waste and inefficiency) from the supplychain and providing competitive advantage (Minihan 2009).

Strategic sourcing requires a holistic process that automates the entire sourcing process,including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order exe-cution. The promise of strategic sourcing is in reducing total acquisition costs while increasing value. A fundamentalshortcoming of sourcing tools today is their inability to allow the creation of complex RFQs that allow for a variety of bidstructures that exploit complementarities and economies of scale in suppliers’ cost structures.

E-sourcing attempts to improve strategic sourcing by making it more effective and efficient. For example, MoaiTechnologies (moai.com) provides the following e-sourcing solutions:

◗ Just-in-Time Sourcing (JITS). Moai’s JITS integrates strategic consulting services with licensed software products.The software directs customers through the e-sourcing process, including negotiating with vendors and securingreliable suppliers, thereby lowering sourcing costs. According to Moai (2006), CompleteSource provides customizedlow-cost solutions for a flat fee. Those who are ready to take complete control of their sourcing process will benefitmost from:• High ROI—fixed subscription cost with huge savings• Maximum customization—can be installed into unique workflows, applications, and processes• Maximum control—“Behind the firewall” solution provides flexibility and control in administering, scheduling,

branding, and process integration◗ Strategic Consulting Services. RapidSource, Moai’s strategic consulting program, promotes testing and validation of

e-sourcing to those new to the concept. With this guidance, users are guaranteed a return on investment in theprogram.

◗ Hosted Sourcing Software. Delays, IT complexities, and costs associated with in-house deployments are eliminated withMoai’s hosted services.


e-sourcingThe process and toolsthat electronically enableany activity in thesourcing process, such asquotation/tendersubmittance andresponse, e-auctions,online negotiations, andspending analyses.



REFERENCES FOR ONLINE FILE W5.10e-jing. “E-Procurement.” e-jing.net/en/solutions/

e-procurement.htm (no longer available online).Johnson, P. F., and R. D. Klassen. “E-Procurement.”

MIT Sloan Management Review (Winter 2005).Minihan, T. “The Truth About E-Sourcing.” Supply

Excellence, March 31, 2009. supplyexcellence.com/blog/2009/03/31/truth-about-e-sourcing (accessedApril 2009).

Moai. “Solutions Overview.” moai.com/solutions/solutions_overview.asp (accessed April 2009).

Podlogar, M. “Simplifying the Procurement Process byUsing E-Commerce.” International Journal ofInternet and Enterprise Management, 4, no. 2(2006).

Zhao, F. Maximize Business Profits Through E-Partnership.Hershey, PA: Idea Group Inc., 2006.


THE PROCUREMENT REVOLUTION AT GENERAL ELECTRICGeneral Electric’s material costs increased 16 percentbetween 1982 and 1992 (Trading Process Network 1999).During those same years, GE’s product prices remained flator for some products even declined. In response to thecost increases, GE began an all-out effort to improve itspurchasing system. The company analyzed its procurementprocess and discovered that its purchasing was inefficient,involved too many transactions, and did not leverage GE’slarge volumes to get the best prices. In addition, morethan one-quarter of its 1.25 million invoices per year hadto be reworked because the purchase orders, receipts, andinvoices did not match.

TPN at GE’s Lighting DivisionOf a number of steps GE took to improve its procure-ment, one of the most innovative was the introductionof an electronic tendering system that started in GE’sLighting Division. Factories at GE Lighting used to sendhundreds of RFQs to the corporate sourcing departmenteach day, many for low-value machine parts. For eachrequisitions, the accompanying blueprints had to berequested from storage, retrieved from the vault, trans-ported to the processing site, photocopied, folded,attached to paper requisition forms with quote sheets,stuffed into envelopes, and mailed out to bidders. Thisprocess took at least seven days and was so complex andtime-consuming that the sourcing department normallysent out bid packages for each part to only two or threesuppliers.

In 1996, GE Lighting piloted the company’s first e-procurement system, called the Trading ProcessNetwork (TPN) Post. With this online system, the

sourcing department received the requisitions electroni-cally from its internal customers and sent off a bid pack-age to suppliers around the world via the Internet. Thesystem automatically pulled the correct drawings andattached them to the electronic requisition forms.Within two hours from the time the corporate sourcingdepartment started the process, suppliers were notifiedof incoming RFQs by e-mail, fax, or EDI. They were givenseven days to prepare a bid and return it electronicallyto GE Lighting. Then the bid was transferred internally,over the corporate intranet, to the appropriateevaluators, and a contract could be awarded that same day.

Benefits of TPN. As a result of implementing TPN, GErealized a number of benefits:

◗ Administrative labor involved in the procurement processdeclined by 30 percent. At the same time, material costsdeclined 5 to 50 percent due to the procurement depart-ment’s ability to reach a wider base of competing suppli-ers online.

◗ GE was able to cut the number of staff involved in the pro-curement process by 50 percent and redeploy the unneces-sary workers into other jobs. As a result, the sourcingdepartment had at least 6 to 8 free days a month to con-centrate on strategic activities rather than on paperwork,photocopying, and envelope stuffing.

◗ It used to take 18 to 23 days to identify suppliers, preparea request for bid, negotiate a price, and award the con-tract to a supplier. After implementation of the TPN, ittook 9 to 11 days.

(continued)




◗ With the transaction handled electronically from begin-ning to end, invoices could be automatically reconciledwith purchase orders, reflecting any modifications thathappened along the way.

◗ GE procurement departments around the world were ableto share information about their best suppliers. InFebruary 1997 alone, GE Lighting found seven new sup-pliers through the Internet, including one that charged20 percent less than the second-lowest bid.

By 2001, 12 of GE’s divisions were purchasing theirnonproduction and MRO materials over the Internet for anannual total of $6 billion (35 percent of their total pro-curement). General Electric estimates that streamliningthese purchases alone has saved the company $500 to$700 million annually.

The Inception of GXSDue to the success of TPN, GE expanded the system, mak-ing it a public posting place for other buyers. In 2001,TPN was acquired by GXS Express Marketplaces, which wasoperated by GE Global Exchange Services (gxs.com). GXSnow operates as a public marketplace on which many othercompanies place RFQs. GXS has over 30,000 companiesincluding 70 percent of Fortune 500 companies, tradingpartners in 50 countries, and in 2008 it processed over 4 billion transactions. It is one of the most profitable dot-com companies. In June 2002, it was sold to FranciscoPartners under whose control it continues to operate underthe name GXS (gxs.com). GXS also assumed the EDI ser-vices of GE Information Services.

Benefits of GXS. Suppliers in the GXS system can gaininstant access to global buyers (including GE) with billionsof dollars in purchasing power. In addition, they may dra-matically improve the productivity of their own biddingand sales activities. Other benefits are increased sales vol-ume, expanded market reach and ability to find new buy-ers, lower administration costs for sales and marketingactivities, shorter requisition cycle time, improved salesstaff productivity, and a streamlined bidding process.

General Electric reports that the benefits of GXSextend beyond its own walls. As an example, computerreseller Hartford Computer Group reports that since joiningGXS, it has increased its exposure to different GE businessunits so that its business with GE has grown by over 250 percent. In addition, GXS has introduced HartfordComputer Group to other potential customers.

More generally, the benefits of GXS to purchasingdepartments include the following: streamlining sourcingprocesses with current business partners; finding andbuilding partnerships with new suppliers worldwide;rapidly distributing information, specifications, and elec-tronic drawings to multiple suppliers simultaneously; andcutting sourcing cycle times and reducing costs forsourced goods.

Deployment Strategies and ChallengesThis case demonstrates two deployment strategies for EC initiatives. The first is to start EC in one division (GE started in its Lighting Division) and slowly go to alldivisions. The second is to also use the site as a publicbidding marketplace to generate commission income.

Even though GE was successful with its e-procurementsystem, it could not reach its original plan of 100 percente-procurement due to connectivity difficulties with SMEs.By 2001, of its 30,000 suppliers, roughly 25 percent(7,500 suppliers) were performing the critical procurementmissions on the Web. Another 7,500 or so were connectedto GE using the dated EDI networks. That left another15,000 suppliers that relied mainly on manual processes toconduct business with GE (Moozakis 2001). (Connectingwith SMEs is a common challenge in B2B implementation.)

Questions1. List and briefly discuss the benefits of GXS to GE.

2. List and briefly discuss the benefits of GXS to GE’scustomers.

3. Why did GE sell the system?

REFERENCES FOR ONLINE FILE W5.11gxs.com (accessed May 2009).Moozakis, C. “GE Scales Back.” Internet Week, May 10,

2001. orafaq.com/maillist/oracle-l/2001/05/11/1056.htm (accessed January 2008).

Trading Process Network. “Extending the Enterprise:TPN Post Case Study—GE Lighting.” TradingProcess Network, 1999. tpn.geis.com/tpn/resource_center/casestud.html (no longer available online).




CHEMCONNECT: THE WORLD COMMODITY CHEMICAL EXCHANGEToday, buyers and sellers of chemicals and plastics canmeet electronically in a large Internet public marketplace(founded in 1995) called ChemConnect (chemconnect.com),which was purchased by Intercontinental Exchange (ICE) inJuly 2007. The international community of membersincludes more than 9,000 companies from over 150 coun-tries worldwide. Global chemical industry leaders, such asBP, Dow Chemical, BASF, Hyundai, Sumitomo, and manymore, make transactions over ChemConnect every day inreal time. They save on transaction costs, reduce cycletime, and find new markets and trading partners around the globe. It was the first B2B e-market in the chemicalindustry.

ChemConnect provides a link to the Global ExchangeServices (GXS, gxs.com) trading marketplace, which man-ages a network of about 150,000 trading partners world-wide including 70 percent of Fortune 500 companies.Members are producers, consumers, distributors, traders,and intermediaries involved in the chemical industry.ChemConnect offers its members a Trading Center withthree trading places:

1. Marketplace for buyers. In this marketplace, buyerscan find suppliers all over the world. They can postRFQs with reverse auctions, negotiate, and more.

2. Marketplace for sellers. This marketplace exposes sell-ers to many potential new customers. It provides auto-mated tools for quick liquidation. More than 1,000products are negotiated in auctions.

3. Commodity markets platform. This platform providesa powerful connection to the global spot marketplacesfor chemicals, plastics, and related materials.

ChemConnect members can use the Trading Center tostreamline sales and sourcing processes by automatingrequests for quotes, proposals, and new suppliers. The cen-ter enables a member to negotiate more efficiently withexisting business partners as well as with new companiesthe member may invite to the table—all in complete pri-vacy. The Trading Center is a highly effective way to getthe best prices and terms available on the worldwide mar-ket. In addition, members can access a database contain-ing more than 63,000 chemicals and plastics—virtuallyany product members are ever likely to look for. In addi-tion to trading, the exchange provides back-end fulfillmentservices (e.g., payments, delivery).

All three trading places provide up-to-the-minutemarket information (mostly financial and news, viabloomberg.com) that can be translated into more than 30 different languages. Business partners provide severalsupport services. For example, Citigroup and ChemConnectjointly offer several financial services for exchange mem-bers. ChemConnect also offers systems for connecting com-panies’ back-end systems with their business partners andwith ChemConnect itself.

The overall benefits of ChemConnect to its membersare more efficient business processes, lower overalltransaction costs, and time saved during negotiation andbidding. For example, conducting a reverse auction in atrading room enables buyers to save up to 15 percent ofa product’s cost in just 30 minutes. The same processusing manual bidding methods would take several weeksor months.

ChemConnect continues to grow, adding members andincreasing its trading volume each year. One of the com-pany’s success factors is that 40 large chemical companieshold about one-third of the company’s stock. Another fac-tor is the fact that about 44 percent of the industry usesthe exchange on a regular basis.

ChemConnect has expanded its coverage to becomea more diversified company, offering midstream energy,such as ethanol, natural gas, and other commodities. Ithas also added negotiation solutions, collaboration hubs, data integration services, price discovery features,and more. Also, its community has been expanded.Participant companies include most large producers,consumers, distributors, traders, and transportation andlogistics companies within each product class in additionto banks, hedge funds, and other interested financialinstitutions. Finally, it offers an infrastructure fornegotiation (see chemconnect.com/negotiation.html).

Questions1. List the benefits of ChemConnect to trading

companies.

2. Describe the different trading platforms.

3. List some of the capabilities of the system.



REFERENCES FOR ONLINE FILE W5.12Angwin, J. “Top Online Chemical Exchange Is an

Unlikely Success Story.” Wall Street Journal Online,January 8, 2004. webreprints.djreprints.com/907660072246.html (accessed January 2008).

chemconnect.com (accessed June 2010).Rappa, M. “Case Study: ChemConnect—Managing the

Digital Enterprise.” 2006. digitalenterprise.org/cases/chemconnect_text.html (accessed May 2009).

In order to succeed in B2B, and particularly in exchanges, it is necessary to have several support services. Successful e-businesses carefully manage partners, prospects, and customers across the entire value chain, most often in a 24/7 envi-ronment. Therefore, one should examine the role of solution technologies, such as call centers and collaboration tools, increating an integrated online environment for engaging e-business customers and partners. The use of such solutions andtechnology appears under two names: supplier relationship management (SRM) and partner relationship management(PRM).

Partner Relationship Management (PRM)Corporate customers may require additional services. For example, customers need to have access to the supplier’s inven-tory status report so they know what items a supplier can deliver quickly. Customers also may want to see their historicalpurchasing records, and they may need private showrooms and trade rooms. Large numbers of vendors are available fordesigning and building appropriate B2B relationship solutions. The strategy of providing suchcomprehensive, quality e-service for business partners is sometimes called partner relationshipmanagement (PRM).

In the context of PRM, business customers are only one category of business partners.Suppliers, partners in joint ventures, service providers, and others also are part of the B2B com-munity in an exchange or company-centric B2B initiative. Companies with many suppliers, suchas the automobile companies, may create special programs for them. Such programs are calledsupplier relationship management (SRM).

Supplier Relationship Management (SRM)One of the major categories of PRM is supplier relationship management (SRM), in which thepartners are the suppliers. For many companies (e.g., retailers and manufacturers), the ability towork properly with suppliers is a major critical success factor. PeopleSoft (an Oracle company),developed a model for managing relationships with suppliers in real time.

PeopleSoft’s SRM Model. PeopleSoft’s cyclical SRM model (see Schecterle 2003) is generic andcould be considered by any large company. It includes 13 steps, as shown in Exhibit W5.13.1. The details of the steps are shown in Exhibit W5.13.2. The core idea of this model is that an e-supply chain is based on integration and collaboration. The supply chain processes are con-nected, decisions are made collectively, performance metrics are based on common understanding,information flows in real time (whenever possible), and the only thing a new partner needs inorder to join the SRM system is a Web browser.

Implementing PRM and SRM is different from implementing CRM with individual customers. For example, behavioraland psychological aspects of the relationships are less important in PRM than in CRM. However, trust, commitment,quality of services, and continuity are more important in PRM. For details, see McNichols and Brennan (2006) andMarkus (2006).

Online File W5.13 Partner and Supplier Relationship Management

partner relationshipmanagement (PRM)Business strategy thatfocuses on providingcomprehensive qualityservice to businesspartners.

supplier relationshipmanagement (SRM)A comprehensiveapproach to managing an enterprise’sinteractions with theorganizations that supply the goods andservices it uses.

(continued)




12 Pay

11 Resolve 9 Deliver

13Analyze1 Access

4 Negotiate5 Contract 6 Connect

7 Engage

8 Transact

2 IdentifySuppliers

3 Assess SupplierPerformance

Start

$

$

!

Forecasts

Inventory

Orders

Quality

Performance

Market Sites

Services

Direct

Indirect

XML

Browser

! 10 Receive

0.0

0.5

1.0

1.5

2.0

2.5

3.0

EDI

Browser

EXHIBIT W5.13.1 SRM from PeopleSoft

Source: Based on Schecterle, B. “Management and Extending Supplier Relationships,” People Talk, April-June 2003.

(continued)




Source: Compiled from B. Schecterle, “Managing and Extending Supplier Relationships,” People Talk (April–June 2003). © 2005 Oracle. All rights reserved.

REFERENCES FOR ONLINE FILE W5.13Markus, L. “The Golden Rule.” CIO Insight, July

2006.McNichols, T., and L. Brennan. “Evaluating Partner

Suitability for Collaborative Supply Networks.”

International Journal of Networking and VirtualOrganisations, 3, no. 2 (2006).

Schecterle, B. “Managing and Extending SupplierRelationships.” People Talk, April–June 2003.

Description

Identify all the resources required to meet the product or service needs of the enterprise.

The availability of a large pool of approved suppliers improves optionsdown the road.

Check past performance, testimonials, and stated capabilities.Prices and other relevant terms count only when combined.Identify and register trading partners. Award contracts to the

appropriate suppliers.Bridge the enterprise and suppliers through procurement procedures

everyone involved can see. Facilitate collaboration.Enable interactions between the enterprise and suppliers. Show

suppliers your forecasted needs and their performance ratings. Lookat their inventory and projections.

Collect orders from across the enterprise. Create purchase orders and check them against budgets. Transmit purchase orders using tendering and RFQ.

As goods are pulled from the supplier’s stock, wireless barcode readersupdate inventory levels. Shipping invoices are generated, and thegoods are delivered.

Wireless devices can help in determining whether everything orderedarrives as planned, in good condition, and in the right quantities.

Resolve any disputes and pay only if satisfied. Explain why payment iswithheld.

Settle up with suppliers and check the actual cost against the projected cost. Set an ERS (Electronic Receipt Settlement).

Analysis of the process can bring any problems to light and lead toimprovements.

1. Access

2. Identify suppliers

3. Access supplier performance4. Negotiate5. Contract

6. Connect

7. Engage and share

8. Transact

9. Deliver

10. Receive

11. Resolve

12. Pay

13. Analyze

EXHIBIT W5.13.2 Managing SRM in Real TimeStep



Online File W5.14 A Model of Organizational Buyer Behavior

AgeGenderEthnicityEducationLifestylePsychological makeupKnowledgeValuesPersonality

IndividualInfluences

PriceBrandPromotionsAdvertisingProduct qualityDesign

Buy or not?What to buy?Where (vendor)?When?How much to spend?Delivery terms?Payments?

Buyers’ Decisions

AuthorityStatusPersuasiveness

InterpersonalInfluences

PaymentsDelivery

Web designContent and intelligent agentsSecurity

FAQsE-mailCall centersOne-to-one

EC Systems

LogisticsSupport

TechnicalSupport

CustomerService

Policies and proceduresOrganizational structureCentralized/decentralized structureSystems usedContracts

OrganizationalInfluences

DecisionProcess(Group orIndividual)

Market Stimuli

EXHIBIT W5.14.1


online file w5.1 generations of b2b e-commerce...online file w5.1 generations of b2b e-commerce...

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