Chapter 1



Chapter 5

B2B E-Commerce: Selling and Buying in Private

E-Markets

Section 5.1 Review Questions

1. Define B2B.

Business-to-business e-commerce refers to transactions between businesses conducted electronically over the Internet, extranets, intranets, or private networks.

2. Discuss the following: spot buying versus strategic sourcing, direct materials versus indirect materials, and vertical markets versus horizontal markets.

Spot buying is the purchase of goods and services as they are needed, usually at prevailing market prices. In contrast, strategic sourcing is the purchase of goods and services involving long-term contracts that are usually based on private negotiations. Direct materials are the materials that are used in the creation of a product whereas indirect materials are used to support that production. Vertical markets are concentrated in a specific industry whereas horizontal markets concentrate on a product or service that is used across several industries.

3. What are company-centric marketplaces? Are they public or private?

Company-centric marketplaces focus on a single company’s purchasing needs or selling needs and are generally private entities owned by that company.

4. Define B2B exchanges.

A B2B exchange is a many-to-many e-marketplace, usually owned and run by a third party, in which many buyers and sellers meet electronically to trade with each other.

5. Relate the supply chain to B2B transactions.

The use of business-to-business electronic commerce is generally a part of existing supply chains that are used to make them more efficient.

6. List the B2B online services.

The virtual service industries in B2B include: travel services, real estate, electronic payments, online stock trading, online financing, and other online services.

7. Summarize the benefits of B2B.

These benefits are listed on page 200.

Section 5.2 Review Questions

1. List the types of sell-side B2B transaction models.

The major types of B2B sell-side transactions include selling from electronic catalogs, selling through forward auctions and one-to-one selling.

2. Distinguish between use and nonuse of intermediaries in B2B sell-side transactions.

In some cases, firms may use an intermediary to provide some or all of their sell-side transaction systems. When intermediaries are used, it is generally in the format of an electronic marketplace. The larger the firm, the more likely it is to use a private, and not a third-party intermediary system.

3. What are buy-side and sell-side transactions? How do they differ?

Buy-side transactions involve one buyer and many sellers whereas sell-side transactions involve one seller and many buyers.

4. Describe customer service in B2B systems.

Customer service in B2B systems is very similar to the customer service provided in B2C systems. It is important to provide the customer with a way to interact with the merchant and have technical questions solved. In this market, personalization/customization of the service becomes even more important because of the large sales volume involved.

5. Describe direct online B2B sales from catalogs.

B2B can use catalogs in much the same way that B2C merchants can. Merchants are able to list a variety of their products online for customers to select and purchase. Personalization/customization becomes more important in B2B sell-side transactions when firms are working with larger customers.

6. Discuss the benefits and limitations of direct B2B sales from catalogs.

There are several benefits to direct sales including: lower order processing costs, a faster ordering cycle, fewer errors, lower search costs for buyers/sellers, lower logistics costs, and customization options. The limitations to direct sales include attracting buyers, channel conflicts, the method of electronic indication, and the required scale to operate efficiently.

Section 5.3 Review Questions

1. What are the advantages of using intermediaries in B2B sales?

It allows manufacturers to decrease the need for customer marketing and distribution. Customers can access several product lines in one area.

2. What types of intermediaries exist in B2B?

A variety of types exist, each adds value to the value chain by moving products from manufacturer to customer.

3. What special services are provided to buyers by Boeing Parts? (Online File W5.5.)

A wide variety of the activities in Boeing’s supply chain are improved by its online initiatives. Examples of these improvements include the ability to handle transactions more efficiently, the ability for customers to order parts conveniently online, reduced personnel costs and goodwill towards Boeing, which may result in future purchases.

4. Compare an e-distributor in B2B to . What are the similarities? What are the differences?

The services are very similar in that they aggregate and distribute goods from a variety of manufacturers. The differences lie in the type, complexity, and cost of the goods distributed.

Section 5.4 Review Questions

1. List the benefits of using B2B auctions for selling.

The four major benefits of using B2B auctions for selling include: revenue generation, cost savings, increased page views, and member acquisition/retention.

2. List the benefits of using auction intermediaries.

The benefits of using an intermediary include the lack of new required resources, fast time to market, customization of interface, low technical and ongoing requirements, and outsourcing of billing/collections.

3. What are the major purposes of forward auctions, and how are they conducted?

These auctions are meant to sell unneeded inventory or other materials to recapture capital. They can be conducted from the company’s site or through a third party.

Section 5.5 Review Questions

1. Define procurement and list the major procurement methods.

Procurement is the acquisition of goods and services for a business. The major methods are listed on page 231.

2. Describe the inefficiencies of traditional procurement.

The traditional procurement system is inefficient because it involves large amounts of time spent analyzing small repetitive purchases that could be made more efficiently through a more developed system. Additionally, the lack of this developed system creates maverick buying.

3. Define e-procurement and its goals.

E-procurement is the electronic acquisition of goods and services for a business. E-procurement attempts to achieve the following goals: increased productivity, lower purchase prices, improved information flow, minimized maverick purchasing, improved payment processes, faster purchasing, reduced processing costs, and finding new suppliers/vendors.

4. List the major e-procurement segments and some activities in each.

These segments and activities are summarized on pages 212 and 213.

Section 5.6 Review Questions

1. Describe the manual tendering system.

Under a manual tendering system, buyers create descriptions of the products that they would like to purchase and then send out RFQs to potential bidders. Potential bidders review the information, ask questions and submit bids. Buyers then evaluate the bids and select a bidder.

2. How do online reverse auctions work?

Companies place their RFQ information online and allow bidders to access that information and place bids.

3. List the benefits of Web-based reverse auctions.

There are several benefits to Web-based reverse auctions including: decreased processing time, easier bidding, easier analysis of bids, larger numbers of bids, and reduced bidding preparation costs.

4. Describe the business drivers of GE’s TPN (now (GXS)) and its evolution over time. (See Online File W5.7.)

The existing RFQ process was not efficient, and that lack of efficiency was multiplied by the huge size of the lighting division. Over time the system has grown to provide more features to users.

Section 5.7 Review Questions

1. Describe a buyer-operated procurement marketplace and list its benefits.

An internal marketplace is an aggregation of several different suppliers’ catalogs in one location. The major benefits of this type of aggregated catalog system involve the ease and speed of the resulting ordering process.

2. Describe the benefits of desktop purchasing.

The benefits include the ability to purchase quickly and at a lower acquisition cost.

3. Discuss the relationship of desktop purchasing with internal procurement marketplaces and group purchasing.

The system allows for easier internal purchasing with fewer management hurdles. It also allows the effective consolidation of MROs for group purchasing.

4. Explain the logic of group purchasing and how it is organized.

Group purchasing is based on the idea that individual buyers will be able to negotiate a better price on goods and services if they act as a buying group. Group purchasing is organized through internal or external aggregation depending on the size of the firm placing the order. External aggregation is usually organized through a third-party system.

5. Describe how e-distributors operate and discuss their appeal to buyers.

Firms allow business customers to purchase in small quantities, instead of buying in bulk.

6. How does B2B bartering work?

B2B bartering usually involves an intermediary operating a bargaining exchange where firms and the goods they would like to trade can be matched.

Section 5.8 Review Questions

1. Define B2B exchanges and list the various types of public exchanges.

A B2B exchange is a many-to-many e-marketplace for business-to-business transactions. Exchanges are categorized as direct or indirect, and then systematic or spot sourcing.

2. Differentiate between a vertical exchange and a horizontal exchange.

A vertical exchange works with specific products for a specific industry while a horizontal exchange works with general products for many industries.

3. What is dynamic pricing? How does it work?

Dynamic pricing is pricing that changes based on the demand for the product or service at a specific time. Auctions are an example.

Section 5.9 Review Questions

1. Define B2B portals.

These are information portals for businesses.

2. Distinguish a vortal from a horizontal portal.

A vortal is a vertical portal that concentrates on a single industry or industry segment. A horizontal portal deals with a wide variety of products of general appeal.

3. Describe some directory services in B2B.

These services generally provide lists of suppliers for a wide variety of materials/product/services.

4. What is a third-party–owned exchange?

A third-party exchange is an exchange that is owned by a neutral third party.

5. Define consortium trading exchanges.

An exchange formed and operated by a group of major companies in one industry

Section 5.10 Review Questions

1. Define PRM and describe its functions.

Partner relationship management (PRM) – business strategy that focuses on providing comprehensive quality service to business partners

2. Define SRM.

Supplier relationship management (SRM) – business strategy that focuses on providing comprehensive quality service to suppliers

3. Describe e-communities in B2B.

E-communities connect personnel, partners, customers, and any combination of the three. E-communities offer a powerful resource for e-businesses to leverage online discussions and interaction in order to maximize innovation and responsiveness.

Section 5.11 Review Questions

1. List some of the reasons corporations are using social networking in B2B EC.

These tools allow them to tap into networks of potential buyers at a low cost.

2. What are some of the benefits of social networking for B2B EC?

• Discover new business partners.

• Improve recruitment (mostly B2C, but some B2B)

• Enhance their ability to learn about new technologies, competitors, and the business environment

• Find sales prospects

• Improve participation in industry association activities (including lobbying)

3. Discuss the strategies for B2B social networking.

Strategies include participation, monitoring, and using existing applications.

Section 5.12 Review Questions

1. Distinguish between organizational buyers and individual consumers.

Organizational buyers are puchasing for their organization while individual customers are purchasing for their own use.

2. Describe B2B EC marketing and advertising methods.

A variety of marketing methods online and off-line are used in B2B. Online directory services or specific customer targetting may be used. Off-line marketing representatives may make sales calls and attend events.

3. Explain how affiliate programs and data mining work in B2B EC.

Firms use both programs to better understand customers, and cater to their needs through better product offerings and sharing in sales.

Answers to EC Application Case Questions

EC Application Case 5.1: Gregg’s Cycles Goes Online

1. Why is this a B2B sell-side case?

The website acts as a catalyst for end purchasers to enter the retail channel. It is a benefit to the retail channel.

2. What are the benefits of this type of Web site for the company?

The site allows users to become familiar with the product, and sells product accessories.

3. Relate the case to social networks.

The site helps to provide a large variety of information on all aspects of cycling, drawing repeat users who will eventually become customers.

4. How does CartGenie support the site?

This is the EC cart software that supports product information and sales.

EC Application Case 5.2: Whirlpool B2B Trading Portal

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

It allows customers to easily select items from a catalog, enter orders, and track them online.

2. What are the benefits of the trading portal to Whirlpool?

It decreases the overall cost of processing orders.

3. Relate the B2B sell-side to a B2C storefront.

These are very similar applications in what they do; the difference is who is targeted at the site (known end users versus anonymous customers).

EC Application Case 5.3: W.W. Grainger and Goodrich Corporation

1. Enter and review all services offered to buyers. Prepare a list of these services.

The site offers a full catalog, as well as shopping and pricing assistants.

2. Explain how Goodrich’s buyers save time and money.

They can shop at one location for a variety of products. Shopping online is quick.

3. What other benefits does Goodrich enjoy by using ?

There is a decrease in paperwork due to the use of online purchasing and purchasing cards.

4. How is desktop purchasing implemented at Goodrich Corporation?

The system has decreased the time spent by purchasing agents and has allowed purchasing to be completed by employees through purchasing cards.

EC Application Case 5.4: How the State of Pennsylvania Sells Surplus Equipment

1. Why is heavy equipment amenable to such auctions?

It is high value, with potential buyers that are physically distant or unable to attend a specific time auction.

2. Why did the state generate 20 percent more in revenues with the online auction?

By allowing a larger potential market, the price of the items increased.

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

The intermediary may help increase the potential market pool as well as supplying the needed technical infrastructure.

4. Comment on the number of bidders and bids as compared with off-line auctions.

The numbers increase as more buyers have access.

EC Application Case 5.5: ChemConnect: the World Commodity Chemical Exchange

1. List the benefits of ChemConnect to trading companies.

The website allows partners to list, buy, and sell chemical commodities. Additionally, ancillary services make these transactions easier and more cost efficient.

2. Describe the different trading platforms.

The systems offer platforms for buyers and sellers, as well as a connection to global spot prices. These systems allow partners to easily access information and complete transactions.

3. List some of the capabilities of the system.

The system provides a number of features including tools that streamline processes to create more cost efficient agreements.

EC Application Case 5.6:

1. When the company’s IPO started trading, hundreds of large corporations rushed to invest in it. Why?

Investors believed that the firm had the ability to capitalize on an expanding market and scale competitively.

2. Trace ’s revenue sources.

Revenue comes from advertisements as well as fees for special services.

3. List the major services provided by .

The site provides sellers access to a well trafficked location with easy to use e-commerce capabilities. Buyers find an easy to search database of products and services.

EC Application Case 5.7: AGENTRICS: A GIANT RETAIL EXCHANGE

1. Enter and find information about services offered, including auctions and negotiations. Write a report.

Student reports will vary. The site offers a wide range of services to meet the needs of those dealing in packaged goods.

2. Enter and identify the services offered and the benefits to retailers and to suppliers. Write a summary.

Many services exist, from auctions to information and matchmaking between companies. Student reports will vary.

3. Enter and find information about the item synchronization project (for WWRE). Summarize the benefits to retailers and to suppliers.

Student reports will vary. The project hopes to eliminate confusion over items and their features.

Answers to Discussions Questions

1. Explain how a catalog-based sell-side e-marketplace works and discuss its benefits.

Sell-side catalog-based marketplaces are very similar to business-to-consumer catalog-based marketplaces. They provide a service that allows buyers to easily select and purchase products from a catalog of potential goods provided by the seller. Sellers are able to easily display a large variety of items to their potential buyers. Buyers are able to make their purchases easily through this online system.

2. Discuss the advantages of selling through online auctions over selling from catalogs. What are the disadvantages?

Selling through auctions has several advantages including low overhead and operational costs if a third-party auction is used, the ability to sell one-of-a-kind items easily, the ability to sell at the prevailing market price, and the ability to change products and pricing quickly. Disadvantages might include limited selling times and reduced control over price.

3. Discuss the role of intermediaries in B2B. Distinguish between buy-side and sell-side intermediaries.

Intermediaries in business-to-business electronic commerce generally perform some sort of value-added operation. These intermediaries provide value through their ability to move goods through the value chain in a manner that assists both those upstream and downstream. Sell-side involves one seller to many buyers, while buy-side involves one buyer from many sellers.

4. Discuss and compare all of the mechanisms that group-purchasing aggregators can use.

Student answers will vary based on the aggregators compared.

5. Should desktop purchasing be implemented only through an internal marketplace?

Student answers will vary and will be based on the interplay between organizational control and ease of purchasing.

6. How do companies eliminate the potential limitations and risks associated with Web-based EDI? (See Online File W5.3.)

Student reports will vary.

7. Suppose a manufacturer uses an outside shipping company. How can the manufacturer use an exchange?

The company can still use the exchange to identify buyers and suppliers.

8. Compare and contrast a privately owned exchange with a private e-marketplace.

Both allow for the exchange of goods between multiple parties, but the focus is on the type of customer served.

9. How does ChemConnect change the market for commodity chemicals?

The site allows buyers and sellers to easily connect, reducing transaction costs.

10. Compare external and internal aggregation of catalogs.

The difference is where the aggregation occurs. Internal aggregation combines all of a company’s catalogs into one database. External aggregation combines multiple company catalogs into one.

Internet Exercises

(Note: URLs may change over time; please check the Internet Exercises on the Turban Web site for possible updates: turban.)

1. Enter and review GSX Express’s bidding process. Describe the preparations your company would make in order to bid on a job.

Answers will vary.

2. Enter and view the capabilities of BizManager (solutions/software/bizmanager) and BizConnect ( trybizconnect/form.jsp).Write a report.

Answers will vary.

3. Examine the sites, , , and . Match a B2B business model with each site.

– solution provider for sell-side, buy-side, exchanges and collaborative commerce

– business-to-business e-commerce software provider

– solution provider for supply chain integration software

4. Visit and . Examine how each company streamlines the purchase process. How do these companies differ from ?

These firms provide software solutions that automate Supplier Resource Management. The solutions allow tighter integration and lower transaction costs between buyers and sellers. The concentration is on solutions for the supply-side. While provides similar solutions, they also focus on buy-side and complete supply chain integration.

5. Visit and identify all activities related to its small business auctions. What services are provided by eBay?

It appears that eBay no longer offers auctions specific to small businesses.

6. Enter and view the demo. Prepare a list of benefits to small and mid-tier organizations.

Student responses will vary. Different firms many have greater needs (and perceived value) in different areas.

7. Enter and find recent B2B vendor reports related to e-procurement. Identify topics not covered in this chapter.

Student responses will vary.

8. Visit , , and examine the tools they sell for conducting various types of e-procurement. List and analyze each tool.

Student responses will vary.

9. Enter and find information about EDI. Prepare a report.

Student responses will vary.

10. Enter the-buying-, , and other group purchasing sites. Report on B2B group buying activities.

Student responses will vary.

11. Go to .au. Prepare a list of resources related to e-procurement.

Student responses will vary.

12. Go to and sign up as a member (membership is free). Create a product and post it. Tell your instructor how to view this product.

Student responses will vary.

13. Compare the services offered by with those offered by . Assuming you are a toy seller, with which would you register? Why? If you are a buyer of auto parts, which would you join and why?

Student responses will vary.

14. Enter and view the demos for different trading alternatives. Examine the revenue model. Evaluate the services from both the buyer’s and seller’s points of view. Also, examine the site policies and legal guidelines. Are they fair? Compare with and . Which of these do you think will survive? Explain your reasoning.

Student responses will vary.

Team Assignments and Role Playing

1. Predictions about the future magnitude of B2B and statistics on its actual volume in various countries keep changing. In this activity, each team will locate current B2B predictions and statistics for different world regions (e.g. Asia, Europe, North America). Using at least five sources, each team will find the predicted B2B volume (in dollars) for the next 5 years in their assigned region. Possible sources of data are listed in Exhibit 3.1 (page 102).

Student answers will vary based on which statistics are used and when statistics are procured.

2. Each team should explore a different e-procurement method and prepare a paper for class presentation. The paper should include the following about the e-procurement method:

a. The mechanisms and technologies used

b. The benefits to buyers, suppliers, and others (if appropriate)

c. The limitations

d. The situations for which each method is recommended

Student answers will vary based on method selected.

3. Form two teams (A and B) of five or more members. On each team, person 1 plays the role of an assembly company that produces television monitors. Persons 2 and 3 are domestic parts suppliers to the assembling company, and persons 4 and 5 play foreign parts suppliers. Assume that the TV monitor company wants to sell televisions directly to business customers. Each team is to design an environment composed of membership in exchanges they can use and present its results. A graphical display is recommended.

Student experiences and reports will vary.

4. Enter , , and lme.co.uk. Compare their operations and services. These exchanges compete in global markets. Examine the trading platforms, portal capabilities, and support services (e.g., logistics, payments, etc.) offered by each.

In what areas do these companies compete? In what areas do they not compete? What are the advantages of in dealing with Asian companies? Are regional exchanges needed? If it is good for Asia to have a regional exchange, why not have a Western European exchange, an Eastern European exchange, a Central American exchange, and so on? If regional exchanges are needed, can they work together? How?

If there are too many exchanges, which are likely to survive? Research this topic and prepare a report.

Student experiences and reports will vary.

5. Enter and examine its offerings. Prepare a report on how exchanges can benefit from its services. How does GT Nexus facilitate supply chains? Can it help e-marketplaces?

Student experiences and reports will vary.

6. Address the following topics in a class discussion:

a. Discuss B2B opportunities in social networking.

b. Discuss risk in B2B social networking.

c. Discuss how globalization impacts B2B.

d. Relate B2B to the four P’s of marketing (product, pricing, placement, promotion).

Student experiences and answers will vary.

End-of-Chapter Real-World Case: IMARKETKOREA

1. How do the support services benefit the exchange?

These systems increase customer savings, from which the exchange profits.

2. Relate this case to desktop purchasing.

This uses some of the concepts of efficient desktop purchasing, but then expands them past purchasing to the enterprise efficiency level.

3. Write a summary of the benefits of the exchange to buyers.

Student summarizes will vary, but will include reduced costs, increased efficiency and better information on processes.

4. Write a summary of the benefits of the exchange to sellers.

Student summarizes will vary, but will include increased sales and customer loyalty.

5. Compare iMK to . What are the similarities and the differences?

Student perceptions will vary, but it appears that the focus of iMK is broader, with an emphasis on process, not just product.

6. Much of iMK’s success is attributed to the understanding of the Korean culture and business environment. Given that iMK wants to expand internationally, what could be some of its stumbling blocks?

The major issue that the group will need to face is how to replicate their model outside of a Korean manufacturing group

7. Check the recent news and press releases (last 6 months) at . Identify expansion patterns.

Student reports will vary.

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