Buying from Virtual Seller Bigboxx.Com

Chapter Five: B2B E-Commerce 1

ONLINE FILE W5.1 BUYING FROM VIRTUAL SELLER BIGBOXX.COM

Bigboxx.com (bigboxx.com), based in Hong Kong, is a B2B Bigboxx.com provides numerous value-added services retailer of office supplies. It has no physical stores and for customers. Among these are the ability to check item sells products through its online catalog; thus, availability in real time; the ability to track the status of Bigboxx.com is an online intermediary. The company each item in an order; promotions and suggested items has three types of customers: large corporate clients, based on customers’ user profiles; customized prices for medium-sized corporate clients, and small office/home every product, for every customer; control and central- offices (SOHOs). It offers more than 8,000 items from approval features; automatic activation at desired time 300 suppliers. Bigboxx.com’s goal is to sell its products intervals of standing orders for repeat purchasing; and in various countries in Southeast Asia. a large number of Excel reports and data, including The company’s portal is attractive and easy to use comparative management reports. and includes tutorials that instruct users on how to Bigboxx.com began operations in spring 2000. By the use the Web site. Once registered, the user can start end of 2006, it had over 8,500 registered customers. shopping using the online shopping cart. Users can look for items by browsing through the online catalog or by searching the site with a search engine. The Questions ordering system is integrated with a SAP-based back-office system. 1. Enter bigboxx.com and staples.com and compare Users can pay by cash or by check (upon delivery), their B2B offerings and purchase processes. (Take via automatic bank drafts, by credit card, or by purchasing the tutorial at bigboxx.com.) What support services card. Soon users will be able to pay through Internet- are provided? based direct debit, by electronic bill presentation and 2. Someday customers may become accustomed to payment, or by Internet banking. buying office supplies online. Then, they may try to Bigboxx.com uses its own trucks and warehouses buy directly from the manufacturers. Will Bigboxx.com to make deliveries within 24 hours of when an or Staples.com then be disintermediated? Why or order is placed. why not?

REFERENCES FOR ONLINE FILE W5.1 bigboxx.com (accessed January 2008). Chan, W. C., T. C. Chu, A. R. Gold, and G. Leibowitz. “Thinking Out of the Box.” The McKinsey Quarterly, no. 2 (2001). 2 Part 3: Business-to-Business E-Commerce

ONLINE FILE W5.2 CISCO CONNECTION ONLINE

Customer Service each shipment. CCO can record the shipping date, the Cisco began providing electronic support in 1991 using method of shipment, and the current location of each value-added networks (VANs). The first applications offered product. All new information is made available to were software downloads, defects diagnosis, and technical customers immediately. As soon as an order ships, advice. In spring 1994, Cisco moved its system to the Web Cisco notifies the customer via e-mail. and named it Cisco Connection Online (CCO). By 2004, Benefits Cisco’s customers and reseller partners were logging onto Cisco reaps many benefits from the CCO system. Cisco’s Web site over 2 million times a month to receive The most important benefits include the following, per technical assistance, place and check orders, or download Interwoven (2001): software. The online service has been so well received that nearly 85 percent of all customer service inquiries and ◗ Reduced operating costs for order taking. By taking 95 percent of software updates are delivered online. The its order process online in 1998, Cisco has saved service is delivered globally in 16 languages. The CCO is $363 million per year, or approximately 17.5 percent considered a model for B2B success, and several books of its total operating costs. This is due primarily to have been written about it (e.g., Slater 2003). increased productivity of the employees who take and process orders. Online Ordering by Customers ◗ Improved quality. The system facilitates the Six Sigma Virtually all of Cisco’s products are made-to-order. Before mission of Cisco. CCO, ordering a product was a lengthy, complicated, and ◗ Enhanced technical support and customer service. error-prone process because it was done by fax or by “snail With more than 85 percent of its technical support mail.” Cisco began deploying Web-based commerce tools in and customer service calls handled online, Cisco’s July 1995, and within a year its Internet Product Center technical support productivity has increased by allowed users to configure and purchase any Cisco product 250 percent per year. over the Web. Today, a business customer’s engineer can ◗ Reduced technical support staff cost. Online technical sit down at a PC, configure a product, and find out immedi- support has reduced technical support staff costs by ately if there are any errors in the configuration (some roughly $125 million each year. feedback is given by intelligent agents). ◗ Reduced software distribution costs. Customers By providing online pricing and configuration tools to download new software releases directly from customers, 99 percent of orders are now placed through Cisco’s site, saving the company $180 million in CCO, saving time for both Cisco and its customers. In the distribution, packaging, and duplicating costs first 5 months of online ordering operations in 1996, Cisco each year. Having product and pricing information booked over $100 million in online sales. This figure grew on the Web and Web-based CD-ROMs saves Cisco to $4 billion in 1998, to over $8 billion in 2002, and to an additional $50 million annually in printing and about $12 billion in 2005 (Cisco Annual Report 2005). distributing catalogs and marketing materials to (Note: data for Cisco’s online and offline sales are not customers. separated after 2005.) ◗ Faster service. Lead times were reduced from 4–10 days Tracking Order Status to 2–3 days. Each month Cisco used to receive over 150,000 order- The CCO system also benefits customers. Cisco status inquiries such as, “When will my order be ready?” customers can configure orders more quickly, immediately “How should the order be classified for customs?” “Is the determine costs, and collaborate much more rapidly and product eligible for NAFTA agreement?” “What export effectively with Cisco’s staff. Also, customer service and control issues apply?” Cisco provides self-tracking and FAQ technical support are faster. tools so that customers can find the answers to many of In 2006, Cisco moved to selling its hardware (routers their questions by themselves. In addition, the company’s and switches and VoIP) and the software that powers them primary domestic and international freight forwarders separately. This unbundling gives customers more flexibility update Cisco’s database electronically about the status of (see Hoover 2006). Chapter Five: B2B E-Commerce 3 REFERENCES FOR ONLINE FILE W5.2 Cisco Annual Report. Cisco Systems, 2005. cisco.com/ writeit4u.net/documents/interwoven/casestudy_ web/about/ac49/ac20/ac19/ar2005/index.html cisco.pdf (accessed January 2008). (accessed January 2008). Slater, R. The Eye of the Storm: How John Chambers Hoover, J. N. “The Cisco Premium.” InformationWeek, Steered Cisco through the Technology Collapse. New July 31–August 7, 2006. York: Harper-Collins, 2003. Interwoven, Inc. “Interwoven Solutions Power Cisco Connection Online.” Interwoven case study, 2001.

Online File W5.3 Extranets

An extranet uses the TCP/IP protocol to link intranets in different locations (as shown in extranet Exhibit W5.3.1). Extranet transmissions usually are conducted over the Internet, which offers A network that uses a little privacy or transmission security. Therefore, it is necessary to add security features. This is virtual private network done by creating tunnels of secured data flows, using cryptography and authorization algo- to link intranets in rithms, to provide secure transport of private communications. An Internet with tunneling different locations over technology is known as a virtual private network (VPN) (see en.wikipedia.org/wiki/Virtual_ the Internet; an private_network). “extended intranet.” Extranets provide secured connectivity between a corporation’s intranets and the intranets of its business partners, materials suppliers, financial services, government, and customers. Access to virtual private network an extranet is usually limited by agreements of the collaborating parties, is strictly controlled, and (VPN) is available only to authorized personnel using a secure password and login. The protected envi- A network that creates ronment of an extranet allows partners to collaborate and share information and to perform these tunnels of secured data activities securely. flows, using cryptogra- Because an extranet allows connectivity between businesses through the Internet, it is an open and flexible platform suitable for B2B. To increase security, many companies replicate phy and authorization the portions of their databases that they are willing to share with their business partners and algorithms, to provide separate them physically from their regular intranets. However, even separated data need to secure transport of be secured. (See Chapter 10 for more on EC network security.) private communications According to Szuprowicz (1998), extranet benefits fall into five categories: over the public Internet. 1. Enhanced communications. The extranet enables improved internal communications; improved business partnership channels; 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 workgroups, and training on demand. 3. Business enhancements. The extranet enables faster time-to-market, potential for simultaneous engineering and collaboration, lower design and production costs, improved client relationships, and creation of new business opportunities. 4. Cost reduction. The extranet results in fewer errors, improved comparison shopping, reduced travel and meeting time and 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 systems, ease of maintenance and implementation, and elimination of paper-based publishing and mailing costs. (continued) 4 Part 3: Business-to-Business E-Commerce

Online File W5.3 (continued)

EXHIBIT W5.3.1 The Structure of an Extranet Intranets Other Business My Suppliers Partners, A, B, C . . . Government

Internet Internet with VPN with VPN Intranets

My Company Intranet My Field Employees Internet with VPN

Intranet B2B

My Customers

Rihao-Ling and Yen (2001) reported additional advantages of extranets, such as ready access to information, ease of use, freedom of choice, moderate setup cost, simplified workflow, lower training cost, and better group dynamics. They also listed disadvantages, such as difficulty in justifying the investment (measuring benefits and costs), high user expec- tations, and drain on resources. Finally, Chow (2004) describes success factors of using extranets in e-supply chains.

KEY TERMS Extranet 3 Virtual private network (VPN) 3

REFERENCES FOR ONLINE FILE W5.3 Chow, W. S. “An Exploratory Study of the Success Factors Szuprowicz, B. Extranet and Intranet: E-Commerce for Extranet Adoption in E-Supply Chain.” Journal of Business Strategies for the Future. Charleston, SC: Global Information Management ( January–March Computer Technology Research Corp., 1998. 2004). Rihao-Ling, R., and D. C. Yen. “Extranet: A New Wave of Internet.” SAM Advanced Management Journal (Spring 2001). Chapter Five: B2B E-Commerce 5

Online File W5.4 From Traditional to Internet-Based EDI

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 are covered in Online File W5.2. Traditional EDI EDI 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 is a 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 a computer-to-computer messaging system with a minimum of human intervention. For a comparison of EDI versus no EDI, see Exhibit W5.4.1. EDI often serves as a catalyst and a stimulus to improve the business processes that flow between organizations. It reduces costs, delays, and errors inherent in a manual document-delivery system: ◗ Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions. These include 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. If there are missing or incorrect data, the EDI converter offers assistance. EDI fosters collaborative relationships and strategic partnerships. In the United States and Canada, data are formatted according to the ANSI X.12 standard or the UCS 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 systems into an EDI station that includes a PC and an EDI translator. From there, the information moves, using a modem if necessary, to a VAN. The VAN transfers the formatted information to a vendor(s), where an EDI translator converts it to a desired format. How EDI Cuts Costs of Ordering Supplies An average hospital generates about 15,000 purchase orders each year, at a processing cost of about $70 per order. The Health Industry Business Communication Council estimates that EDI can reduce this cost to $14 per order—generating yearly savings of $840,000 per hospital. The required investment ranges between $8,000 and $15,000, which includes purchase of a PC with an EDI translator, a modem, and a link to the mainframe-based information system. The hospital can have two or three ordering points. These are connected to a value-added network (VAN), which connects the hospital to its suppliers (see Exhibit W5.4.2). The system also can connect to other hospitals or to centralized joint purchasing agencies. Applications of Traditional EDI Traditional EDI has changed the business landscape, triggering new definitions of entire industries. It is used extensively by large corporations, sometimes in a global network, such as the one operated by General Electric Information System (which has over 100,000 corporate users). Well-known retailers such as Home Depot and Wal-Mart would operate very differently without 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 customers through such practices as quick-response retailing and just-in-time (JIT) manufacturing. These highly visible, high-impact applications of EDI by large companies have been extremely successful. The benefits of EDI are listed next. (continued) 6 Part 3: Business-to-Business E-Commerce

Online File W5.4 (continued)

EXHIBIT W5.4.1 Purchase Order (PO) Fulfillment with and Without EDI

Start P. O . Delivery

Sales Order Placer Accounting/Finance Order Confirmation Mail Room Bill Delivery

Without EDI

Purchasing Accounting/Finance Payment Mail Room Delivery

Shipping

Shipping Product Receiving Order Fulfillment Delivery Buyer Seller

Computer Convertor P. O . Generates Standardized Standardized P. O . F o r m P. O . F o r m P. O .

Start Invoice Flash Report

With EDI Instant Departmental Data to Buyer • Sales EDI Converter • Inventory • Manufacturing • Engineering

Shipping Product Receiving Order Fulfillment Delivery Buyer Seller

(continued) Chapter Five: B2B E-Commerce 7

Online File W5.4 (continued)

EXHIBIT W5.4.2 How EDI Cuts the Cost of Ordering Supplies

Hospitals PC/EDI Translator

Pharmaceutical Mainframe Pharmacy: Supplier’s PC/EDI System Translator

Hospital Dietary: PC/EDI Translator PC/EDI Information PC/EDI Modem System Translator VAN Dietary Supplier’s System Material Management: PC/EDI Mainframe Translator PC/EDI Translator Other Hospitals’ PC/EDI Materials Translators Supplier’s System

PC to Mainframe Links Mainframe Telephone Lines

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 TPS (transaction processing system) 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 manufactures, shippers, and warehouses almost in real time. ◗ EDI can save companies a considerable amount of money. Limitations of Traditional EDI However, despite the tremendous impact of traditional EDI among industry leaders, the set of adopters represented only a small fraction of potential EDI users. In the United States, where several million businesses participate in commerce every day, fewer than 100,000 companies have adopted traditional EDI. Furthermore, most of these companies have had only a (continued) 8 Part 3: Business-to-Business E-Commerce

Online File W5.4 (continued)

small number of their business partners on EDI, mainly due to its high cost. Therefore, in reality, few businesses have benefited 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 not suitable as a long-term solution for most corporations. Therefore, a better infrastructure was needed; Internet-based EDI is such an infrastructure. For details, see Harris and Chen (2006). Internet-Based EDI Internet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the case and review the various types of Web-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 B2B trading 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 geographic constraints. Its largest attribute, large-scale connectivity (without the need for any special company networking architecture), is a seedbed for growth of a vast range of business applications. ◗ The Internet’s global network connections offer the potential to reach the widest possible number of trading partners of any 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 (see Boucher-Ferguson 2002). Types of Internet-Based EDI The 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 messages 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 of which correspond to the fields in an EDI message or document. (continued) Chapter Five: B2B E-Commerce 9

Online File W5.4 (continued)

◗ Companies can use a Web-based EDI hosting service in much the same way that companies rely on third parties to host their EC sites. Netscape Enterprise is an example of the type of Web-based EDI software that enables a company to provide its own EDI services over the Internet. Harbinger Express is an example of a company that provides third-party hosting services. ◗ Internet-based EDI is frequently XML based to ease integration among business partners. The Prospects of Internet-Based EDI Companies that used traditional EDI in the past have had a positive response to Internet-based EDI. With traditional EDI, companies have to pay for network transport, translation, and routing of EDI messages into their legacy processing systems. The Internet simply serves as a cheaper alternative transport mechanism. For a discussion, see Witte et al. (2003). The combination of the Web, XML, and Java makes EDI worthwhile even for small, infrequent transactions. Whereas EDI is not interactive, the Web and Java were designed specifically for interactivity as well as ease 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 the transition to Web-based EDI, the company was able to average 35,000 transactions. The system helped the company to grow rapidly. ◗ Tradelink of Hong Kong was successful in recruiting only several hundred of the potential 70,000 companies to a traditional EDI that communicated with government agencies regarding export/import transactions. In 2001, Tradelink’s Internet-based system had thousands of companies registered, and hundreds were being added monthly. ◗ 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 $2 per message. ◗ Procter & Gamble replaced a traditional EDI system that had 4,000 business partners with an Internet-based system that has tens of thousands of suppliers. Note that many companies no longer refer to their collaborative systems as EDI. However, the properties of EDI are embedded into new e-commerce initiatives such as collaborative commerce and electronic exchanges.

REFERENCES FOR ONLINE FILE W5.4 Boucher-Ferguson, R. “Writing the Playbook for B2B.” Witte, C. L., M. Grünhagen, and R. L. Clarke. “The Wilson Internet, January 29, 2002. Integration of EDI and the Internet.” Information Harris, A. L., and C. Chen. “Traditional and Internet Systems Management (Fall 2003). 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. 10 Part 3: Business-to-Business E-Commerce

Online File W5.5 Boeing’s Parts Marketplace

Boeing (boeing.com) is the world’s largest maker of airplanes for commercial and military customers. It also plays the role of intermediary in supplying replacement and maintenance parts to airlines. Unlike other online B2B intermediaries, revenue from its intermediary activities may be a minor concern to Boeing, which makes most of its revenue from selling airplanes. The major goal of Boeing’s intermediary parts market, called PART (Part Analysis and Requirement Tracking), is supporting customers’ maintenance needs as a customer service. The objective of PART is to link airlines that need maintenance parts with suppliers who are producing the parts for Boeing aircraft (see boeing.com/commercial/spares/part_page.html). Boeing’s online strategy is to provide a single point of online access through which airlines (the buyers of Boeing’s aircraft) and the maintenance and parts providers (Boeing’s suppliers) can access data about the parts they need. These data might come from the airframe builder, the component supplier, the engine manufacturer, or the airline itself. Thus, Boeing is acting as an intermediary between the airlines and the parts suppliers. With data from 300 key suppliers of Boeing’s airplane parts, Boeing’s goal is to provide its customers with one-stop shopping for online maintenance information and ordering. The Spare Parts Business Using Traditional EDI Ordering spare parts had been a multistep process for many of Boeing’s customers. For example, an airline’s mechanic informed the purchasing department of his company that a specific part was needed; the purchasing department approved the purchase order and sent it to Boeing by phone or fax. The mechanic did not need to know who produced the part, because the aircraft was purchased from Boeing as one body. However, Boeing had to find out who produced the part and then ask the producer to deliver the part to the customer (unless Boeing happened to keep an inventory of that part). The largest airlines began to streamline the ordering process about 20 years ago. Because of the volume and regular- ity of their orders, they established EDI connections with Boeing over VANs. Not all airlines were quick to follow suit, however. It took until 1992 to induce 10 percent of the largest customers, representing 60 percent of the volume, to order through EDI. The numbers did not change much until 1996 due to the cost and complexity of VAN-based EDI. Debut of Part on the Internet Boeing viewed the Internet as an opportunity to encourage more of its customers to order parts electronically. With the initial investment now limited to a standard PC and basic Internet access, even its smallest customers can now participate in PART. Because of its interactive capabilities, many customer service functions that were handled over the telephone are now handled over the Internet. In November 1996, Boeing introduced its PART page on the Internet, giving its customers around the world the ability 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 for parts orders and customer service inquiries. In its first year of operation, the Boeing PART portal handled over half a million inquiries and transactions from customers around the world. Boeing’s spare parts business processed about 20 percent more shipments per month in 1997 than it did in 1996 with the same number of data entry people. In addition, as many as 600 phone calls a day to customer service staff were eliminated because customers had access to information about pricing, availability, and order status online. The use of PART online resulted in fewer parts being returned due to administrative errors. Furthermore, the service may encourage airlines to buy Boeing aircraft the next time they make an aircraft purchase. (For a demo of PART, visit boeing.com.) As a result of PART’s success, Boeing started a complementary EC initiative called Boeing OnLine Data (BOLD), which enables mechanics and technicians at the airport to access the technical manuals they need for repairs. These manuals are now available in digital form, and mechanics and technicians can access them via wireline or wireless devices. In May 2000, Boeing also launched a new e-business site for airline customers based on PART and BOLD. Chapter Five: B2B E-Commerce 11 REFERENCES FOR ONLINE FILE W5.5 “Boeing Launches New E-Business Web Site.” Aerotech Boeing. “Portal Power: E-Business at Boeing Gaining News and Review—Journal of Aerospace and Defense Velocity.” August 29, 2002. boeing.com/commercial/ Industry News, May 12, 2000. news/feature/ebiz.html (accessed January 2008).

ONLINE FILE W5.6 E-PROCUREMENT AT SCHLUMBERGER

Schlumberger is the world’s largest oil service company, For example, Office Depot’s entire catalog is posted on with over 50,000 employees in 100 countries and annual the MarketSite (now part of Product Manager from sales of over $10 billion (schlumberger.com). In 2000, the Perfect.com), but Schlumberger employees only see company installed a Web-based automated procurement negotiated products and prices. In 2005, the company system in Oilfield Services, its largest division. With this plans to negotiate prices in real time through auctions system, employees can buy office supplies and equipment, and other bidding systems. as well as computers, straight from their desktops. The benefits of the procurement system are clear. The The system replaced a number of older systems, cost of goods has been reduced; transaction costs also have including automated and paper-based ones. The single fallen. Employees spend much less time in the ordering system streamlines and speeds up the purchasing operation, process, thus giving them more time for their core work. The reducing costs as well as the number of people involved in system also is more cost-efficient for the suppliers, who can the process. It also enables the company to consolidate then pass along savings to Schlumberger. By using one purchases for volume discounts from vendors. system worldwide, employees who are transferred do not The new procurement system gives buyers centralized have to learn a new system at their new location. control over the entire procurement process and offers a Procurement effectiveness has been increased, because it complete purchase-to-pay solution for MRO items to is now possible to track all procurement activities. strategic-indirect items. This solution improves efficiency Getting the system up and running was easy because and decreases labor costs by eliminating manual, it was implemented in stages and ran at the same time as paper-based processes and providing enterprisewide existing systems. Employees did not have to deal with self-service procurement by: implementation issues—once the system was in place, the ◗ Eliminating paper-based business documents old system was disabled, and there were no complaints ◗ Reducing maverick spending and generating savings by with regard to the old system being shut down, because it enforcing contract-based purchasing was no longer in use. ◗ Radically reducing PO processing time from days or By 2006, the system was used by over 6,000 users weeks to minutes in 83 countries for the procurement of over $2 billion in ◗ Eliminating the need for additional headcount to goods and services each year. The system delivers signifi- support internal e-procurement cant cost savings, improved productivity, and error ◗ Eliminating the need for the buyer’s resources to load reduction. The RFQ process and special request purchases and manage catalogs and price files are now automated, connecting business processes ◗ Integrating ERP or existing accounting systems between systems and partners. ◗ Integrating ERP for master data users such as cost centers, shipping and billing addresses, and organizational structures Questions ◗ Providing advanced functionality for streamlined processing 1. Describe the benefits of the new system over the old ◗ Providing standardized purchasing reports by cost system. center, supplier, organization, commodity, and others 2. Describe how the e-procurement system operates. Prices are negotiated with individual vendors 3. Summarize the benefits of e-procurement to the before their items are put into Schlumberger’s system. company and its employees. 12 Part 3: Business-to-Business E-Commerce REFERENCES FOR ONLINE FILE W5.6 Commerce One. “Schlumberger: Customer Profile.” Schlumberger. “Schlumberger Corporate Profile.” commerceone.com/customers/profiles/schlumber slb.com/content/about/who.asp? (accessed January ger.pdf (no longer available online). 2008). Ovans, A. “E-Procurement at Schlumberger.” Harvard Business Review (May–June 2000). Perfect.com. “Procurement Manager.” 2006. perfect.com/ solutions/procurement_manager.html (accessed January 2008).

Online File W5.7 Implementing E-Procurement

E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance to change is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at a reasonable 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 direct materials 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 most effectively implement such automated support, the people involved in procurement must collaborate with the suppliers along the supply chain, as described in Chapter 6. Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part is implementing it. The components of e-procurement systems are shown in Exhibit W5.7.1. For a model that simplifies the procurement process by performing tasks electronically, see Podlogar (2006).

EXHIBIT W5.7.1 Potential E-Procurement Components Module Components Catalog Management Module • Facilitates the creation of products, subassemblies, • Catalog manager and components in a hierarchical manner. • Catalog exchanger • AVL (Approved Vendor List) editor Collaborative Planning Module • Supports collaborative planning between buyers and • Request for Quote (RFQ) suppliers. • Request for Proposal (RFP) • Demand forecaster • Contract manager • Inventory manager • Information flow controller (continued) Chapter Five: B2B E-Commerce 13

Online File W5.7 (continued)

Module Components Online Purchase Module • Supports both systematic and spot procurement for direct • Purchase via contracts and indirect materials and for contracts (for both goods • Purchase from catalog and services). • Reverse auction service for direct/indirect materials • Reverse auction service for contracts • Auction service Purchase-Order Handling Module • Enables buyers to place purchase orders via on/off • Purchase order manager item master, reverse auction, contract purchasing, • Demand aggregator and spot market requisition. • Consignment manager • Just-in-time order manager Document Service Module • Facilitates a broad range of services for procurement • Document indexing documentation such as RFQ, RFP, PO, goods receipt, • SML exchanger and accounts payable. • Document version controller Historical Performance Service Module • Provides easy access to historical statistics • Periodical reports of all transactions. • Customized reports • Statistical analysis Information Service Module • Provides a unified information and message service • Message/task center that allows users to receive/send e-mails and view • Status of procurement operations status of procurement activities. • Customized exceptional alerts • Smart search engine • Online negotiation/discussion service System Administration Module • Provides tools that enable the company to control • Company master data organizer procurement activities. • Product group builder • Workflow designer • Authorization matrix • Look and feel designer • User/department profile organizer

Source: Compiled from e-jing.net (accessed November 2006). Used with permission.

The following are some of the major implementation issues that companies must consider when planning e-procurement initiatives: ◗ 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 purchasing agents, where they are located, and how purchases are approved. The degree of purchasing centralization also may be affected. (continued) 14 Part 3: Business-to-Business E-Commerce

Online File W5.7 (continued)

◗ Providing interfaces between e-procurement and integrated enterprise wide information systems, such as ERP or supply chain management. If the company does not have such systems, it may be necessary to do some restructuring before moving to e-procurement. ◗ Coordinating the buyer’s information system with that of the sellers. Sellers have many potential buyers. For this reason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an integration-oriented procurement system for its buyers. The SKF information system is designed to make it easier for the procurement systems of others (notably the distributors in other countries) that buy the company’s bearings and seals to interface with the SKF system. The SKF system allows distributors and large buyers to gain real-time technical information on the products, as well as details on product availability, delivery times, and commercial terms and conditions. ◗ Consolidating the number of regular suppliers and integrating with their information systems and, if possible, with their business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolved and will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the company to get a quantity discount. Collaboration with each supplier also will be enhanced. When implementing e-procurement, companies also should evaluate e-sourcing,the e-sourcing processes and tools that electronically enable any activity in the procurement process, such as The process and tools quotation/tender requests and responses, e-auctions, online negotiations, and spending analyses that electronically (see ariba.com/solutions/sourcing_enterprise.cfm and Johnson and Klassen 2005). E-sourcing is the enable any activity in automation of strategic sourcing. the sourcing process, Strategic sourcing is the process of identifying opportunities, evaluating potential sources, such as quotation/ negotiating contracts, and managing supplier relationships to achieve corporate goals, such as tender submittance and cost reductions and increased quality and service. In an e-sourcing study by AMR (Murphree 2003), the companies surveyed reported savings of 10 to 15 percent in the cost of direct goods response, e-auctions, and 20 to 25 percent in the cost of indirect goods and services. Companies also reported reduc- online negotiations, tions in sourcing cycle times. and spending analyses. Strategic sourcing requires a holistic process that automates the entire sourcing process, including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order execution. The promise of strategic sourcing is in reducing total acquisition costs while increasing value. A fundamental shortcoming of sourcing tools today is their inability to allow the creation of complex RFQs that allow for a variety of bid structures 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, Moai Technologies (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 securing reliable suppliers, thereby lowering sourcing costs. According to Moai (2006), CompleteSource provides customized low-cost solutions at a flat fee. Those who are ready to take complete control of their sourcing process will benefit most 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 the program. ◗ Hosted Sourcing Software. Delays, IT complexities, and costs associated with in-house deployments are eliminated with Moai’s hosted services. Chapter Five: B2B E-Commerce 15 KEY TERM e-sourcing 14

REFERENCES FOR ONLINE FILE W5.7 e-jing. “E-Procurement,” e-jing.net/en/solutions/ March 2003. sdcexec.com/publication/article.jsp? e-procurement.htm (no longer available online). pubId=1&id=4410 (accessed January 2008). Johnson, P. F., and R. D. Klassen. “E-Procurement.” Podlogar, M. “Simplifying the Procurement Process by MIT Sloan Management Review (Winter 2005). Using E-Commerce.” International Journal of Moai. “Solutions Overview.” moai.com/solutions/ Internet and Enterprise Management 4, no. 2 (2006). solutions_overview.asp (accessed January 2008). Zhao, F. Maximize Business Profits through E-Partnership. Murphree, J. “Global Enabled Supply and Demand Hershey, PA: Idea Group Inc., 2006. Chain Series: Sourcing.” SDCExec.com, February–

ONLINE FILE W5.8 Comparison of Pre-Internet and Web-Based Reverse Auction Processes The Pre-Internet Tendering System Process The Web-Based Reverse Auction Process The buyer prepares a paper-based description of the The buyer gathers product information automatically product (project) that needs to be acquired. The description from online sources and posts it on its secured includes specifications, blueprints, quality standards, corporate portal. delivery date, and required payment method. The buyer announces the RFQ via newspaper ads, direct The buyer sends e-mail alerts to selected vendors, inviting mail, fax, or telephone. them to view the projects available for bid. Many suppliers constantly monitor buyers’ sites or aggregator’s sites. Bidders (suppliers) that express interest receive detailed The buyer identifies potential suppliers from among information (sometimes for a fee), usually by postal those who responded to the online RFQ and invites mail or a courier. suppliers to bid on the project. Bidders download the project information from the Web. Bidders prepare proposals. They may call the company for Bidders conduct real-time or delayed reverse auctions. additional information. Sometimes changes in the specs Requests for more information can be made online. (specifications) are made, which must be disseminated Changes in specs can be disseminated electronically. to all interested bidders. Bidders submit paper proposals, usually several copies Bidders submit proposals in electronic format. of the same documents, by a preestablished deadline. Proposals are evaluated, usually by several departments, The buyer evaluates the suppliers’ bids (by several sequentially, at the buyer’s organization. Communication departments, simultaneously). Communications, and clarification may take place via letters or phone/fax. clarifications, and negotiations to achieve the “best deal” take place electronically. Buyer awards a contract to the bidder(s) that best meets its Buyer awards a contract to the bidder(s) that best meets requirements. Notification is usually done via postal mail. its requirements. Notification is done online. 16 Part 3: Business-to-Business E-Commerce

Online File W5.9 The Procurement Revolution at General Electric

General Electric’s material costs increased 16 percent between 1982 and 1992 (gxs.com 1999). During those same years, GE’s product prices remained flat or for some products even declined. In response to the cost increases, GE began an all-out effort to improve its purchasing system. The company analyzed its procurement process and discovered that its purchasing was inefficient, involved too many transactions, and did not leverage GE’s large volumes to get the best prices. In addition, more than one-quarter of its 1.25 million invoices per year had to be reworked because the purchase orders, receipts, and invoices did not match. TPN at GE’s Lighting Division Of a number of steps GE took to improve its procurement, one of the most innovative was the introduction of an electronic tendering system that started in GE’s Lighting Division. Factories at GE Lighting used to send hundreds of RFQs to the corporate sourcing department each day, many for low-value machine parts. For each requisitions, the accompanying blueprints had to be requested from storage, retrieved from the vault, transported to the processing site, photocopied, folded, attached to paper requisition forms with quote sheets, stuffed into envelopes, and mailed out to bidders. This process took at least 7 days and was so complex and time consuming that the sourcing department normally sent out bid packages for each part to only two or three suppliers. In 1996, GE Lighting piloted the company’s first e-procurement system, called the Trading Process Network (TPN) Post. With this online system, the sourcing department received the requisitions electronically from its internal customers and sent off a bid package to suppliers around the world via the Internet. The system automatically pulled the correct drawings and attached them to the electronic requisition forms. Within 2 hours from the time the corporate sourcing department started the process, suppliers were notified of incoming RFQs by e-mail, fax, or EDI. They were given 7 days to prepare a bid and return it electronically to GE Lighting. Then the bid was transferred internally, over the corporate intranet, to the appropriate evaluators, and a contract could be awarded that same day. Benefits of TPN As a result of implementing TPN, GE realized a number of benefits: ◗ Administrative labor involved in the procurement process declined by 30 percent. At the same time, material costs declined 5 to 50 percent due to the procurement department’s ability to reach a wider base of competing suppliers online. ◗ GE was able to cut by 50 percent the number of staff involved in the procurement process and redeploy the unnecessary workers into other jobs. As a result, the sourcing department had at least 6 to 8 free days a month to concentrate on strategic activities rather than on paperwork, photocopying, and envelope stuffing. ◗ It used to take 18 to 23 days to identify suppliers, prepare a request for bid, negotiate a price, and award the contract to a supplier. After implementation of the TPN, it took 9 to 11 days. ◗ With the transaction handled electronically from beginning to end, invoices could be automatically reconciled with purchase orders, reflecting any modifications that happened along the way. ◗ GE procurement departments around the world were able to share information about their best suppliers. In February 1997 alone, GE Lighting found seven new suppliers through the Internet, including one that charged 20 percent less than the second-lowest bid. By 2001, 12 of GE’s divisions were purchasing their nonproduction and MRO materials over the Internet for an annual total of $6 billion (35 percent of their total procurement). General Electric estimates that streamlining these purchases alone has saved the company $500 to $700 million annually. The Inception of GXS Due to the success of TPN, GE expanded the system, making it a public posting place for other buyers. In 2001, TPN was acquired by GXS Express Marketplaces, which was operated by GE Global Exchange Services (gxs.com). GXS now operates as a public marketplace on which many other companies place RFQs. GXS has over 100,000 trading partners in 58 countries, and in 2004 it processed over 1.2 billion transactions valued at over $1 trillion. It is one of the most profitable dot-com companies. In June 2002, it was sold to Francisco Partners under whose control it continues to operate under the name GXS (gxs.com). GXS also assumed the EDI services of GE Information Services. (continued) Chapter Five: B2B E-Commerce 17

Online File W5.9 (continued)

Benefits of GXS Suppliers in the GXS system can gain instant access to global buyers (including GE) with billions of dollars in purchasing power. In addition, they may dramatically improve the productivity of their own bidding and sales activities. Other benefits are increased sales volume, expanded market reach and ability to find new buyers, lower administration costs for sales and marketing activities, shorter requisition cycle time, improved sales staff productivity, and a streamlined bidding process. General Electric reports that the benefits of GXS extend beyond its own walls. As an example, computer reseller Hartford Computer Group reports that since joining GXS, it has increased its exposure to different GE business units so that its business with GE has grown by over 250 percent. In addition, GXS has introduced Hartford Computer Group to other potential customers. More generally, the benefits of GXS to purchasing departments include the following: streamlining sourcing processes with current business partners; finding and building partnerships with new suppliers worldwide; rapidly distributing information, specifications, and electronic drawings to multiple suppliers simultaneously; and cutting sourcing cycle times and reducing costs for sourced goods. Deployment Strategies and Challenges The GE 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 all divisions. The second is to also use the site as a public bidding marketplace to generate commission income. Even though GE was successful with its e-procurement system, it could not reach its original plan of 100 percent e-procurement due to connectivity difficulties with SMEs. By 2001, of its 30,000 suppliers, roughly 25 percent (7,500 suppliers) were performing the critical procurement missions on the Web. Another 7,500 or so were connected to GE using the dated EDI networks. That left another 15,000 suppliers that relied mainly on manual processes to conduct business with GE (Moozakis 2001). (Connecting with SMEs is a common challenge in B2B implementation.)

REFERENCES FOR ONLINE FILE W5.9 gxs.com (accessed January 2008). Trading Process Network. “Extending the Enterprise: Moozakis, C. “GE Scales Back.” Internet Week, May 10, TPN Post Case Study—GE Lighting.” Trading 2001. orafaq.com/maillist/oracle-l/2001/05/11/ Process Network, 1999. tpn.geis.com/tpn/resource_ 1056.htm (accessed January 2008). center/casestud.html (no longer available online). 18 Part 3: Business-to-Business E-Commerce

ONLINE FILE W5.10 iMARKETKOREA

iMarketKorea (iMK) is Korea’s largest e-marketplace management). iMK also supports connectivity to enterprise specializing in MRO items for the construction industry. systems (e.g., ERP, legacy systems). The system architecture Since its inception in 2000, the company has grown and the major participants are shown in Exhibit W5.10.1. rapidly. From a market for Samsung’s 45 affiliated One of the major services provided by iMK is the SRM companies, iMK grew to serve about 500 companies in orientation. This includes features such as: 2007. Of these new companies, some are outside Korea and most are not Samsung affiliates. The exchange ◗ The ability to calculate “total cost of ownership” (for e-catalog includes over 400,000 MRO items. purchasing). Initially, iMK concentrated on acting as a procurement ◗ Strategic sourcing processes. agent to the Samsung companies. By 2007, however, the ◗ Formal evaluation of suppliers (assessment, company shifted its vision to become a B2B procurement selection, monitoring) through a formal service provider, providing end-to-end procurement services. scorecard grading system. Among its most popular services are payments, deliver- ◗ Knowledge sharing about best practices of procurement. ies, purchasing and budget management, internal approval ◗ B2B auctions (forward and reverse, either as supporting process and inventory management, storage, and more (all the entire process or in helping customers take charge for buyers). In addition, it helps to smooth its customers’ of the major activities, helping only with procedural supply chains (e.g., process improvement and workflow matters during the auction).

EXHIBIT W5.10.1 iMK System Architecture

Local PC GroupWare Workflow HR, Accounting System

Single Sign On Approval User Login Request User, Department, Approval Budget Status Used Budget Records iMarketkorea Marketplace ERP (SAP, Oracle…) SMS Legacy Purchasing System Network/ASP businesses Buyer PO, GR, (RFQ) Supplier

Carriage Request PO Records, GR Records Invoice Records Order Tracking TPL System (carriage) Financial System Account PO, DO, GR Details GR AR/AP Records Details

® iMarketkorea Financial System Supplier System

Source: iMarketKorea, “Purchasing Innovation: Value Proposition.” 2006. imarketkorea.co.kr/en_HD/DC9553ED_IMK_homepage_en_ 200408.pdf (accessed December 2006). (continued) Chapter Five: B2B E-Commerce 19

ONLINE FILE W5.10 (Continued)

◗ Spend management analysis and control. The results speak for themselves: on-time delivery ◗ Provision of collaborative e-sourcing tools. increased from 72 percent to 93.7 percent; average lead- ◗ Decision support and optimization models for buyers. time was reduced from 5.3 days to 2.8 days; catalog search ◗ Contract management. speed has increased 40 percent; 12 to 18 percent savings ◗ Integrating suppliers by selecting those who are in purchase prices; 30 to 50 percent savings in process reliable and sound and who are able to provide value costs; 5 to 15 percent savings in inventory management (price matters, too, of course), leading to long-term costs; and 40 to 60 percent savings in reduced inventory. strategic relationships (win-win situation). All these savings have contributed to the success and ◗ Risk assessment and management. growth of iMK. The site offers Korean, English, and ◗ Item standardization for inventory and cost reduction at Japanese options to registered users. the suppliers’ level. This enables better cataloging and faster and easier search (e.g., simultaneous search of many items). Questions ◗ Analyzing replies to RFQs quickly, considering 1. How do the support services benefit the exchange? large amount of computerized information and 2. Relate this case to desktop purchasing (Chapter 5). knowledge. ◗ Joint process improvement, attempting to reduce 3. Summarize the benefits of the exchange to buyers. supplier’s TCO (providing suppliers with a comprehensive 4. Summarize the benefits of the exchange to sellers. program of how to do it). 5. Compare iMK to Alibaba.com. What are the The following are some recent iMK initiatives: similarities and the differences? ◗ Alliance with the Japanese Sumitomo Corp. (a top online 6. Much of iMK’s success is attributed to the trading company), kicking off global business expansion. understanding of the Korean culture and business iMK is already exporting MROs to 12 countries. environment. Given that iMK wants to expand ◗ iMK exported over $1 billion of MROs in 2005, plus $1.2 internationally, what could be some of its in raw materials (an over 30 percent increase over 2004). stumbling blocks? ◗ Collaborating with Woori Bank, iMK opened a B2C and 7. Check the recent news and press releases (last B2B2C channel for selling gifts over the Internet to the 6 months) at imarketkorea.com. Identify expansion bank’s employees. patterns.

REFERENCES FOR ONLINE FILE W5.10 iMarketKorea. “iMarketKorea Enters into Strategic en_HD/menu_05001–17view.jsp (accessed January Business Cooperation Agreement with Sumitomo 2008). Corporation Japan.” January 25, 2006. imarketkorea. Lee, Z., and D. S. Lee. “Transition from a Buyer’s com/en_HD/menu_05001–19view.jsp (accessed Agent to a Procurement Service Provider in B2B January 2008). iMarketKorea.” In Lee, J. K., et al., Premier iMarketKorea. “iMarketKorea Opens Woori Bank e-Business Cases from Asia, Singapore: Prentice Hall e-Shop.” December 19, 2005. imarketkorea.com/ and Pearson Education South Asia, 2007. 20 Part 3: Business-to-Business E-Commerce

ONLINE FILE W5.11 THE RISE AND FALL OF COVISINT

There are only several major automakers, but they buy communicate directly with anyone else. Instead of an array parts, materials, and supplies from thousands of suppliers, of unorganized communication lines, it is all organized in who frequently buy parts and materials from thousands of one place. subsuppliers. At times, the procurement process is slow, One of the major objectives of the exchange was to costly, and ineffective. facilitate product design. Covisint offered its customers On February 25, 2000, General Motors Corporation, best-of-breed functionality; customers took the best Ford Motor Company, and DaimlerChrysler launched a B2B aspects from multiple technical providers. The ability to integrated buy-side marketplace called Covisint. The goal integrate providers across the supply chain creates a was to eliminate redundancies from suppliers through inte- unique environment for collaborative design and develop- gration and collaboration, with promises of lower costs, ment (collaborative commerce), enables e-procurement, easier business practices, and marked increases in efficien- and provides a broad marketplace of buyers and suppliers. cies for the entire industry. It makes accessible a wealth of supply chain expertise The name Covisint (pronounced KO-vis-int) is a com- and experience, ranging from procurement to product bination of the primary concepts of why the exchange was development. Covisint’s potential membership was formed: The letters “Co” represent connectivity, collabora- about 30,000 suppliers. tion, and communication; “vis” represents the visibility Because of its large size, the exchange has been that the Internet provides and the vision of the future of developing slowly. Nevertheless, Cleary (2001) reports that supply chain management; and “int” represents the on May 8, 2001, DaimlerChrysler used Covisint to success- integrated solutions the venture offers as well as the fully conduct a $3 billion reverse auction for auto parts international scope of the exchange. that lasted 4 days. However, in July 2002 the founders of The purpose of the marketplace’s connectivity was to Covisint ceased to provide funding. They remain sharehold- integrate buyers and sellers into a single network. Visibility ers, but Covisint is now controlled by an independent board was intended to provide real-time information presented in and an advisory council made up of 21 of the largest sup- a way that speeds decision making and enables communi- pliers and OEMs (Original Equipment Manufacturers) to the cation through every level of a company’s supply chain, automotive industry. By early 2003, a new CEO was trying anywhere in the world. By using the Web, a manufacturer’s to accelerate Covisint’s progress. In summer 2004, Covisint production schedule and any subsequent changes were able was acquired by Compuware Corp. By September 2004, the to be sent simultaneously and instantly throughout its exchange was still struggling financially, even though it entire supply chain. The result was less need for costly provides services to 20,000 companies in 96 countries. inventory at all levels of the supply chain and an increased By 2006, Covisint had changed direction, providing ability to respond quickly to market changes. global trading services. A major area of Covisint’s focus is Typically, an automaker would buy parts from one partner collaboration and integration. It provides complete supplier, who in turn would buy from its suppliers solutions for safely sharing internal applications with (subsuppliers), who would then buy from other suppliers external users, automating external partner user life cycle (sub-sub-suppliers). In this traditional linear supply chain, management and administration, and providing reliable the automaker communicates only with its top-tier (tier 1) data messaging (including EDI) between partner suppliers. applications and systems. Imagine that the auto manufacturer has hundreds of Covisint now provides access to a global community of similar supply chains, one for each supplier, and that many of 100,000 users, representing 45,000 companies in 96 countries. the suppliers, in all tiers, produce for several manufacturers. The flow of information will be very complex. This complexity introduces inefficiencies in communication as well as difficul- Questions ties for the suppliers in planning their production schedules 1. Describe the concepts upon which Covisint is to meet demand, resulting in supply chain problems. structured. The Covisint process greatly changed supply chain 2. Describe how Covisint changed the supply chain in communication in the automobile industry. Rather than the automobile industry. being at the top point of a pyramid, as in the industry’s traditional supply chain, the auto manufacturers were at the 3. Investigate the current ownership and management center of a spoke-and-wheel arrangement. By 2004, Covisint of Covisint. served 19 automakers. The Covisint trading hub enables the 4. Enter covisint.com/about. How does the new automakers and their various suppliers and subsuppliers to company differ from the old one? Chapter Five: B2B E-Commerce 21 REFERENCES FOR ONLINE FILE W5.11 Cleary, M. “Covisint Talks Trash.” Interactive Week, Mercator+Software+Selected+By+Covisint+to+ May 21, 2001. Integrate+Best-Of-Breed...-a071130604 (accessed covisint.com (accessed January 2008). January 2008). Covisint. “Mercator Software Selected by Covisint to Covisint. “Supply Chain Management: Supplyconnect.” Integrate Best-of-Breed Applications.” Covisint 2001. covisint.com/downloads/print/supplier_conn. press release, February 7, 2001a. thefreelibrary.com/ pdf (no longer available online).

ONLINE FILE W5.12 GLOBAL TRANSPORTATION NETWORK OCEAN PORTAL

Although much publicity is given to public exchanges that tailored for specific customers and carriers, including rate deal with materials and products, such as ChemConnect, and contract management, cargo forecasting, and several service-oriented exchanges have been created, and resource allocation. The benefits of the system to the some of them are growing rapidly. One such exchange is a ocean-shipping industry include: global transportation exchange for ocean transportation ◗ Significant efficiencies and cost savings. A 2002 study named Global Transportation Network (GTN). conducted by Accenture estimated that cost savings from GTN was formed in 2001 by a consortium of 13 ocean these process improvements and efficiencies alone carriers (lines) that collectively represent more than resulted in savings of 5 to 10 percent for carriers and 40 percent of worldwide capacity, and a software company, customers across a range of industries (Coia 2002). GT Nexus (gtnexus.com) that specializes in global logistics GTN frees individual carriers from the huge capital costs and supply chain products. associated with the advanced technologies and resources The objective of the exchange, which is primarily required to create proprietary technology methods. a portal type, is to serve the ocean-shipping industry. ◗ Standardization and ease of use. GTN automates The industry is composed of carriers, shippers (such as core transactions and makes it easier for customers to Wal-Mart and others who import many goods from abroad), conduct business with multiple providers using common and service providers (such as banks, insurance brokers, standards. freight forwarders, and logistics providers). The mission of ◗ Secure and confidential access. GTN provides a secure the exchange is to fundamentally change the process of and confidential environment for customers and carriers getting goods around the world by using the Internet to to conduct business over the Internet. provide superior service that maintains complete security for customers and the carriers. GT Nexus and its CEO are Industry experts have observed various improvements the exchange managers. for the participants of the exchange (Goodman 2002). A sin- To develop the portal, the management team worked gle carrier cannot afford to offer as many EC applications as with many customers to identify customer needs and the exchange offers; therefore, the exchange has greatly determine how the portal could help meet them. expanded the number of applications available to carriers. Customers wanted a multi-EC model that could meet their The system also has enabled customers to do business elec- diversified needs in a unified way. Existing B2B software tronically throughout every process in the shipment cycle. products were too narrow; a custom portal had to be built. For example, contract negotiation, a very time-consuming The GTN e-commerce platform is much more than a process, has been speeded up by the exchange. In addition, portal. It supports core transactional capabilities such as because carriers now have access to many more shippers booking, invoicing, payment, tracking and tracing, rate than they could have found on their own, the number of negotiation, container management, and scheduling. GTN electronic transactions for carriers has doubled, even in the offers standardized booking, documentation, and tracking first year of operation in the exchange. Carriers have also systems and provides better and more efficient customer been able to improve customer service, one of the major support. In addition, it provides customized capabilities motivators for using the exchange. (continued) 22 Part 3: Business-to-Business E-Commerce

ONLINE FILE W5.12 (continued)

The shipping industry is deregulated and very These numbers are up 150 percent from 2005 and competitive. However, lots of cooperation, such as vessel represent over 20 percent of all container volume moving sharing, still goes on. The GTN system helps to facilitate in and out of North America. This demonstrates two such collaboration. Several alliances among carriers also things. First, the concept of going online to handle a exist, and they are supported by the system. Information multimillion-dollar, strategic-transportation activity has sharing via open standards and Web-enabled systems is a become common for big shippers. And second, GT Nexus primary objective of the portal. has become the industry standard and market leader for The technology of the exchange has contributed to global transportation management. its effectiveness. Data fit the internal IT systems of all users. Standardized processes allow carriers to present their services to shippers in the same way. Clients are Questions able to use one interface to retrieve any information, regardless of the carrier with which the booking was 1. Identify the critical success factors of this exchange. made. The system uses a secured Internet connection 2. Is a consortium the best type of ownership for this (with a VPN) and has an optional EDI for some kind of exchange? transactions. It also allows for competitive tendering 3. Although there are thousands of shippers, some of through reverse auctions. The exchange was recognized them are very large (e.g., Wal-Mart), does it make by InfoWorld Magazine (Sanborn 2002) as one of the top sense to have them create a shippers’ exchange? three technology projects. Why or why not? For the 2006 bid season, GT Nexus tallied the 4. What motivates a carrier to participate in the following results: exchange? ◗ Over 2.6 million TEUs procured and managed over the 5. What motivates a shipper to participate in the portal (one TEU is a 20-foot cargo container or its exchange? equivalent) ◗ More than $3.5 billion in transportation services 6. How was customer service improved by the contracted with carriers exchange? ◗ Participation of ocean carriers who together control 7. Research GT Nexus’ on-demand model and list its more than 90 percent of global TEU capacity capabilities.

REFERENCES FOR ONLINE FILE W5.12 Angwin, J. “Top Online Chemical Exchange Is an GT Nexus. “GT Nexus Names Jeff Lynch Vice Unlikely Success Story.” Wall Street Journal Online, President of Sales.” GT Nexus press release, October January 8, 2004. webreprints.djreprints.com/ 2002. findarticles.com/p/articles/mi_pwwi/is_ 90766007 2246.html (accessed January 2008). 200303/ai_mark02051787 (accessed January 2008). Coia, A. “Evolving Transportation Exchanges.” World Sanborn, S. “Sailing Online.” Infoworld Magazine, Trade, July 2002. October 18, 2002. infoworld.com/articles/fe/xml/ Goodman, R. “Going Online Brought Smooth Sailing 02/11/04/021104fegtn.html (accessed January to World of Ocean Shipping.” Supplychainbrain.com, 2008). June 2002. glscs.com/archives/6.02.ocean.htm? adcode=90 (accessed January 2008). Chapter Five: B2B E-Commerce 23

Online File W5.13 Supplier Relationship Management

One of the major categories of PRM is supplier relationship management (SRM), in which the supplier relationship partners are the suppliers. For many companies (e.g., retailers and manufacturers), the ability management (SRM) to work properly with suppliers is a major critical success factor. PeopleSoft, Inc., (an Oracle A comprehensive company) developed a model for managing relationships with suppliers in real time. approach to managing PeopleSoft’s cyclical SRM model (see Schecterle 2003) is generic and could be considered by an enterprise’s interac- any large company. It includes 13 steps, illustrated in Exhibit W5.13.1. The details of the steps tions with the organi- are shown in Exhibit W5.13.2. The core idea of this model is that an e-supply chain is based on zations that supply the integration and collaboration. The supply chain processes are connected, decisions are made collectively, performance metrics are based on common understanding, information flows in real goods and services it time (whenever possible), and the only thing a new partner needs in order to join the SRM uses. system is a Web browser. Implementing PRM and SRM is different from implementing CRM with individual customers. For example, behavioral and 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) and Markus (2006).

EXHIBIT W5.13.1 SRM from PeopleSoft

5 Contract 6 Connect 4 Negotiate $ Forecasts 7 Engage Assess Supplier Inventory 3 Performance $ Browser Orders EDI Identify 2 Quality Suppliers Market Sites

XML Performance

3.0

2.5 Start 2.0 1.5 1.0 13 0.5

0.0 Browser 1 Access Analyze Indirect ! 10 Receive Direct

! Services 8 Transact 12 Pay

11 Resolve 9 Deliver

Source: Based on Schecterle, B. “Management and Extending Supplier Relationships,” People Talk, April–June 2003. (continued) 24 Part 3: Business-to-Business E-Commerce

Online File W5.13 (continued)

EXHIBIT W5.13.2 Managing SRM in Real Time Step Description 1. Access Identify all the resources required to meet the product or service needs of the enterprise. 2. Identify suppliers The availability of a large pool of approved suppliers improves options down the road. 3. Access supplier Check past performance, testimonials, and stated capabilities. performance 4. Negotiate Prices and other relevant terms count only when combined. 5. Contract Identify and register trading partners. Award contracts to the appropriate suppliers. 6. Connect Bridge the enterprise and suppliers through procurement procedures everyone involved can see. Facilitate collaboration. 7. Engage and share Enable interactions between the enterprise and suppliers. Show suppliers your forecasted needs and their performance ratings. Look at their inventory and projections. 8. Transact Collect orders from across the enterprise. Create purchase orders and check them against budgets. Transmit purchase orders using tendering and RFQ. 9. Deliver As goods are pulled from the supplier’s stock, wireless barcode readers update inventory levels. Shipping invoices are generated, and the goods are delivered. 10. Receive Wireless devices can help in determining whether everything ordered arrives as planned, in good condition, and in the right quantities 11. Resolve Resolve any disputes and pay only if satisfied. Explain why payment is withheld. 12. Pay Settle up with suppliers and check the actual cost against the projected cost. Set an ERS (Electronic Receipt Settlement).

KEY TERM Supplier relationship management (SRM) 23

REFERENCES FOR ONLINE FILE W5.13 Markus, L. “The Golden Rule.” CIO Insight, July International Journal of Networking and Virtual 2006. Organisations 3, no. 2 (2006). McNichols, T., and L. Brennan. “Evaluating Partner Schecterle, B. “Managing and Extending Supplier Suitability for Collaborative Supply Networks.” Relationships.” People Talk, April–June 2003.