Lecture 5B2B Electronic Commerce

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. 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.

8. 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.

9. 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.

10. 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.

11. Describe direct 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 from. Personalization/customization becomes more important in B2B sell-side transactions when firms are working with larger customers.

12. 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.

13. Describe Cisco’s B2B activities and list their benefits to Cisco and to its customers.

Cisco’s System provides a central portal for service, ordering and order information. The benefits of the system include decreased costs, increased quality, better and faster technical support and reduced distribution costs.

14. 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.

15. 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.

16. 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.

17. List the major infrastructures required for B2B EC.

The major infrastructures required for the systems include: servers for databases and applications, software for sell-side activities, software for auctions, software for e-procurement, software for CRM, security systems, storefront software, exchange software, and networks and protocols.

18. Describe the roles of extranets and EDI in interorganizational networks.

EDI provides a standardized system of communication for passing information between business partners. And extranets provide a secure medium for communication while leveraging existing Internet infrastructures and protocols.

19. Distinguish traditional EDI from Web-based EDI.

Web-based EDI uses internet protocols (instead of proprietary networks) to distribute

Real-World Ca

information.

20. Describe the purpose of XML.

XML is meant to be the replacement for EDI by providing a consistent, flexible language for data transmission that relies on existing Internet standards.

21. Describe Web services and their role in integration.

Web services are an architecture that allows for the combination of several applications in one location. It can ease integration by providing the building blocks for distributed systems.

22. What role do software agents play in B2B?

Software agents can play a variety of roles in B2B including automating the purchasing and quoting process.

Wal-Mart (wabnart.com) is the largest retailer in the world with $312.4 billion in sales for the fiscal year ending January 31, 2006. Altogether, Wal-Mart employs 1.8 million people, 1.3 million in the United States. The company has 3,800 stores in the United States and more than 2,600 in the rest of the world. Each week, 176 million customers visit Wal-Mart stores worldwide; including 127 million in the United States (see walmartfacts.com).

Wal-Mart maintains an intense strategic focus on the customer. Its standard company cheer ends with, "Who's number one? The customer." Wal-Mart has also established itself as a master of the retail process by streamlining its supply chain and undercutting competitors with low prices.

Wal-Mart has had an online presence since 1996. However, one problem with its strategy for growing online sales has been the demographics of its primary customer base. Wal-Mart's target demographic is households with $25,000 in annual income, whereas the median income of online consumers is perhaps $60,000. Despite these demographics, online sales (primarily in music, travel, and electronics) through walmart.com already account for about 10 percent of Wal-Mart's U.S. sales. Its long-time chief rival, Kmart, Inc., tried to attract its demographic audience to its Web site (kmart.com) by offering free Internet access. This appealed to its cost-conscious, lower-income constituency and provided the opportunity for those customers to access the site to conduct purchases. However, this move decreased company profits in the short run and was one of the factors that led Kmart to file for bankruptcy in 2002.

Wal-Mart also has concerns about cannibalizing itsProvide cobranded low cost Internet access to dwellers in both very rural and very urban areas, where there are no Wal-Mart stores nearby. The intent is to lure new market segments and thus cancel the effect of cannibalization. Ultimately, a hybrid e-tailer that can offer a combination of huge selection with the click-and-mortar advantages of nearby stores (e.g., merchandise pickup or returns) may prove to be the 800-pound gorilla of online consumer sales.

In 2002, Walmart.com matured, offering order status and tracking, a help desk, a clear return policy and mechanisms, a store locator, and information on special sales and liquidations. Also, community services such as photo sharing are provided.

Wal-Mart only offers some of its merchandise online, but the selection is increasing, including items not available in some or all stores (e.g., spas, mattresses). In 2004, Wal-Mart started selling songs online for 88 cents each, competing with Apple's iTunes. Inexpensive items (e.g., those that sell for less than $5) are not available online. Also in 2004, during a 4-day Thanksgiving special, Wal-Mart began to court more affluent shoppers with new and more expensive items available only online. Products included cashmere sweaters and Shiatsu massage chairs. The Web site averaged 8 million visitors each week prior to the promotion.

Wal-Mart had added many new products to its online catalog. International customers can buy Wal-Mart products directly from Wal-Mart (if shipping is available) or from affiliate sites. For example, see ASDA (asda.co.uk), a Wal-Mart owned U.K. company.

According to Nielsen/NetRatings, in 2006 Wal-Mart recorded the second-largest increase in Web traffic

Visits to Walmart.com in July 2006 were 19.5 million, up 27 percent over July 2005. For July 2006, Walmart.com was ranked the fourth top site by Nielsen/NetRatings in terms of the number of visits, following the top three sites of eBay, Amazon.com, and Target (Intemetretailer.com 2006c).

Sources: Maguire (2002), Bhatnagar (2004), Internetretailer.com (2006c), and walmart.com (accessed November 2006).

Questions

1. Compare walmart.com with amazon.com. What features do the sites have in common? Which are unique to Walmart.com? To Amazon.com?

2. Will Wal-Mart become the dominant e-tailer in the world, replacing Amazon.com, or will Amazon.com dominate Wal-Mart online? What factors would contribute to Wal-Mart's success in the online marketplace? What factors would detract from its ability to dominate online sales the way it has been able to dominate physical retail sales in many markets?

3. Check the shopping aids offered at walmart.com. Compare them with those at amazon.com.

4. Compare buying a song from Walmart.com versus buying it from Apple's iTunes.5. Walmart.com sells movies online for a monthly fee. How do similar sellers compare?6. Visit walmart.com, target.com marksandspencer.com, and sears.com. Identify the

common features of their online marketing and at least one unique feature evident at each site. Do these sites have to distinguish themselves primarily in terms of price, product selection, or Web site features?

7. Investigate the options for international customers on the Wal-Mart Web site.