Up until the late 1980s, limitations in computer architecture and communica-tions devices forced even the most technically savvy companies to remain fairly concentrated on the management of internal business functions. Although tools fostering business-to-business connectivity, such as EDI, were slowly growing, the enterprise-centric and proprietary nature of computing in this period great inhib-ited the ability of systems to interconnect with vital information occurring out in the business network. Even simple data components, like inventory balances and forecasts, were communicated with great difficulty to sister warehouses or divi-sions, let alone to trading partners whose databases resided beyond the barriers of their own information systems. Data transmission was purely a manual affair, and because of the nature of the business philosophies of the time, shared only with the greatest reluctance.
By the late 1990s, however, the marketplace had become aware of a definite acceleration in the speed of change shaping the business environment driven by new management concepts and the emergence of Internet technologies. Management buzzwords such as agile enterprises, virtual organizations, total quality manage-ment, business process engineering, and lean manufacturing all focused on a common theme: how to eliminate time and costs from processes while providing businesses with the ability to be more flexible and connected with their supply channel partners. In tandem with these new ideas occurred the rise of technol-ogy infrastructures, especially the World Wide Web and the personal computer (PC), permitting companies to escape from the prison of mainframe computers and proprietary databases. Today, the challenge of technology is integration and the creation and deployment of Internet-based products and services to network buyers and sellers ever closer together.
The first major technology breakthrough enabling companies to link with other companies was EDI. Despite the recent rise in Internet-enabled data transmission capabilities, EDI constitutes today’s most widely used method of supply chain
connectivity. EDI provides for the computer-to-computer exchange of business transactions such as customer orders, invoices, and shipping notices. EDI is an extranet system and consists of a set of transactions driven by a mutually agreed upon and implemented set of data transfer standards usually transmitted via private value-added networks (VANs). The critical importance of EDI is that the transact-ing companies can be ustransact-ing business systems that run on different software systems and hardware. The EDI standards act as a “translator” that utilizes the agreed upon transmission protocols to take the data residing in the computer format of the send-ing company and convert it into the data format used by the business system of the receiving company.
There are various benefits to the use of EDI. To begin with, EDI increases com-munications and networking by enabling channel partners to transmit and receive up-to-date information regarding network business processes electronically, thereby assisting the entire supply chain to leverage the productivities to be found in infor-mation networking. Second, EDI streamlines business transactions by eliminating paperwork and maintenance redundancies, thereby significantly shrinking cycle times in a wide spectrum of transaction processing activities. Third, EDI provides increased accuracy. Because transactions are transferred directly from computer-to-computer, the errors that normally occur as data is manually transferred from business to business are virtually eliminated. Fourth, EDI result in a reduction in channel information processing by removing duplication of effort and accelerating information flows that can significantly reduce time and cost between supply chan-nel partners. Fifth, EDI increases response by enabling chanchan-nel members to shrink processing times for customer and supplier orders and to provide for timely infor-mation that can be used to update planning schedules throughout the channel.
And finally, EDI results in increased competitive advantage by enabling the entire supply network to shrink pipeline inventories, reduce capital expenditure, improve ROI, and actualize continuous improvements in customer service.
Although providing an effective method for data exchange between businesses, there are a number of drawbacks to EDI. To begin with, EDI is expensive and time consuming to implement. In addition, the basic data elements of the EDI transac-tion are centered on transmitting whole packets of informatransac-tion that must be sent, translated, and then received through trading partner systems. The time it takes, often several hours or even days for processing, militates against the real-time flow of information and decision-making necessary for today’s business environments.
Furthermore, the proprietary nature and cost of EDI renders it a poor supply chain enabler. What was always needed was a way to make information available to the entire supply network at a very low threshold of cost and effort, but which at the same time enabled channel partners to use it to execute strategic decisions.
Sometime in the mid-1990s technologically savvy companies began to explore the use of a new computerized tool that held out the potential to drastically alter forever the way firms fundamentally communicated and conducted business with their customers and suppliers. That tool was the Internet. Fueled by the explosion
in PC ownership, advancements in communications capabilities, and the shrink-ing cost of computer hardware and software, companies became aware that a new medium for exchange was dawning, a new medium that would sweep away the traditional mechanisms governing the flow of products and information through the supply chain. The Internet provided businesses with a radically new way of interacting based on the personalized, one-to-one marketing, buying, and selling between individual suppliers and consumers. Web-enabled business can be said to consist of four phases as portrayed in Figure 3.7 and discussed below.
I-Marketing
The first phase of e-business has been termed Internet Marketing (I-Marketing) because it is almost exclusively limited to the presentation of information about companies and their products and services utilizing relatively simple Web-based multimedia functions.
The goal of I-Marketing is simple. Throughout history businesses have been faced with the fundamental problem of how potential customers, separated by space and time, could find out about companies and their range of goods and ser-vices. Despite the sophistication of the traditional marketing techniques, there were a number of problems with the approaches. To begin with, by its very nature space and time fragment markets. The use of methods like mass media advertising and
Increasing business value
Figure 3.7 Four phases of Web-enabled e-Business.
direct marketing resulted in silo customer segmentation and hit-or-miss approaches that attempted to provoke a wide band of prospect interest or inform the existing client base. Second, the traditional marketing approaches represented a basically passive approach on the part of customers to search for and learn about new com-panies and their product/service mixes. Buyers tended to avoid the difficult task of sourcing and comparison in favor of purchasing based on branding and proven personal relationships.
The advent of the Internet-enabled companies to finally escape from the limita-tions of traditional marketing by providing a revolutionary medium to commu-nicate to customers anywhere, at anytime around the world. This first stage of Internet business was quite simple. Use of I-Marketing browsing enabled custom-ers to search, view graphical presentations, and read static text about companies.
I-Marketing Web sites actually are little more than online repositories of informa-tion and are often termed “brochureware” because of their similarity to tradiinforma-tional catalogs and other printed product/service publications. Due to their limited func-tional architectures and business purpose, I-Marketing Web sites do not provide for the entry of transactions or the ability of companies to interact with existing customers or prospects using the site.
Despite the deficiencies, the use of I-Marketing signaled an order of magnitude departure from traditional marketing techniques. To begin with, the ubiquitous use of the Web meant that companies were no longer circumscribed by time and space. A firm’s mix of goods and services could be accessed by anyone, anytime, anywhere on earth. This meant that all enterprises across the globe, both large and small, now had a level playing field when it came to advertising their businesses, their products, and their services. I-Marketing also changed dramatically the role of the customer who moved from a passive recipient of marketing information to an active participant in the search for suppliers that best matched a potential matrix of product, pricing, promotional, and collaborative criteria. Finally, I-Marketing- enabled companies to aggregate marketing data from multiple vendors into a com-mon catalog, thereby creating an early version of electronically linked communities of e-marketplaces.
e-Commerce Storefront
While I-Marketing did provide companies with the capability to open exciting new channels of communication with the marketplace, technologically savvy executives soon realized that what was really needed was a way to perform transactions and permit interactions between themselves and the consumer over the Internet. During the second half of the 1990s, advancing Internet capability enabled a new kind of business model—business-to-consumer (B2C). This model was designed specifi-cally to sell and service consumers online. Soon companies like Amazon.com, Best Buy, and Barnes and Noble were offering Web-based storefronts that combined online catalogs and advertising techniques with new technology tools such as Web
site personalization, self-service, interactive shopping carts, bid boards, credit card payment, and online communities that permitted actual online shopping.
According to Hoque [17], the new e-business storefronts spawned a whole new set of e-application categories and included the following:
e-Tailing and Consumer Portals.
◾ These are the sites today’s Internet shopper
normally associates with Web-based storefront commerce. The overall object of enterprises in this category is to enable Web-driven fixed price transac-tions centered on products and services aggregated into catalogs and sold to consumers.
Bidding and Auctioning.
◾ Sites in this category perform two possible func-tions. Some sell products and services through auction-type bidding using bid boards, catalog integration, and chat rooms. Others, like eBay, on SALE, and uBid perform the role of third party cybermediaries who, for a service price, match buyers and sellers.
Consumer Care/Customer Management.
◾ These applications provide a wide
range of customer support processes and functions focused on enabling a close relationship-building experience with the consumer. These applications include customer profile management, custom content delivery, account management, information gathering, and interactive community building.
Electronic Bill Payment (EBP).
◾ These applications assist customers to maintain
accounts, pay bills electronically, and assist in personal finance management.
A good example of an Internet facilitator in this category is PayPal. Typical EBP features include Internet banking, bill consolidation, payment process-ing, analysis and reportprocess-ing, and integration with biller accounting systems.
For many in both the marketplace and the investment community, the B2C enterprise seemed to offer a path to a whole new way of selling and servicing to a global marketplace. The advantages of the e-commerce storefront over traditional
“bricks-and-mortar” firms were obvious. A single seller could now reach a global audience that was open for business every day of the year, at any hour. By aggre-gating goods and deploying Web-based tools, this new brand of marketer could offer customers a dramatically new shopping experience that combined the ease of shopping via personal PC with an immediacy, capability for self-service, access to a potentially enormous repository of goods and services, and information far beyond the capacities of traditional business models.
e-Commerce went through some very difficult times in the early years of the new millennium as the infamous “tech bubble” broke. In the ensuing dotcom carnage, thousands of e-commerce sites shut their virtual doors and some experts predicted years of struggle for online retail ventures. However, over the remain-der of the decade B2C commerce has flourished despite concerns over security, taxation, and consumer protection. Shoppers have continued to flock to the Web in increasing numbers. By 2010, consumers are expected to spend $329 billion
each year online, according to Forrester Research. What’s more, the percentage of US households shopping online is expected to grow from 39% in 2007 to 48% in 2010. Globally, it is estimated that Internet sales will reach $1 trillion by 2012.
The goal of storefront e-commerce is nothing less than the reengineering of the traditional transaction process by gathering and deploying all necessary resources to ensure that the customer receives a complete solution to their needs and an unparalleled buying experience that not only reduces the time and waste involved in the transaction process, but also generates communities-of-interest and full-ser-vice consumer processes. Take for instance Amazon.com whose goal is not just to sell products, but to create a shopping “brand” where customers can log on to shop for literally anything. In such a culture the real value of the business is found in owning the biggest customer base that contains not only their names and addresses but also their buying behaviors, opinions, and desires to participate in communities of like consumers.
e-Business Marketplaces
e-Business marketplaces (B2B) differ from e-commerce storefronts (B2C) in sev-eral ways. The most obvious is that the former is concerned with the transaction of products and services between businesses while the latter is between consumers and various types of e-storefront. Also, the focus of the business relationship is quite different. By definition, e-commerce is concerned with consumer-type buying where the shopper searches electronically from storefront to storefront, often ignor-ing previous allegiances to store brandignor-ing. In contrast, B2B marketplaces resemble traditional business purchasing: it is often a long-term, symbiotic, and relationship-based activity where collaboration between stakeholders directed at gain-sharing is critical.
There are several alternative categories of B2B [18]. An MRO hub is a public Internet-based product and service aggregator (e.g., W. W. Grainger and McMaster-Carr) that provides nonproduction products and services for a specific vertical or general industry marketplace. All catalogs are hosted on a common hub that busi-nesses connect into. Given their horizontal nature, MRO hubs tend to use “hori-zontal” third party logistics for delivery. A second type of B2B is yield managers.
This type of B2B focuses on the spot procurement of manufacturing inventories and tends to be more vertical in nature than MRO hubs. The purpose of a yield manager is to insulate buyers and sellers from production variations by allowing them to scale their operating resources upwards or downwards at short notice by participating in the spot market.
A third type of B2B is a trading exchange. This type of B2B focuses on creating spot markets for commodity-type products and services within specific industry verticals. While an exchange maintains buyer–seller relationships, buyers and sell-ers rarely seek direct relationships. In fact, in many exchanges, buysell-ers and sellsell-ers
may not even know each others’ identities. Exchanges serve a yield-management role, because they allow purchasing managers to smooth out the peaks and valley in demand and supply by “playing the spot market.” Exchanges can be divided into three separate types. The selection of a type depends on the overall strategy of the business and how it wants to compete in the marketplace. Exchanges can be described as follows:
Independent Trading Exchanges (ITXs).
◾ ITXs can be defined as a
many-to-many marketplace composed of buyers and sellers networked through an independent intermediary (Figure 3.8). ITXs are primarily used for man-aging spot buys, disposing of excess and obsolete inventory, and procuring noncritical goods and services. ITXs operate in industry marketplaces that are highly fragmented and have special user needs, time-sensitive products, geographical limitations, volatile market conditions, and nonstandardized manufacturing or channel delivery processes. ITXs can essentially be divided into two types. The first, independent vertical exchanges, addresses industry specific issues and provides industry-specific applications, services, and exper-tise without significant investment from existing industry players. Examples include CheMatch and ChemConnect in chemicals and plastics, e2open and Partminer in high-tech electronics, RetailExchange and Redtagbiz in retail, and Enermetrix and Altra Energy Technologies in utilities. The second type of ITX is termed independent horizontal exchanges and focuses on facilitating procurement economies, products, and services to support business processes that are common across multiple industries.
Supplier
Supplier
Supplier
Buyer
Buyer
Buyer Independent trading
exchange (ITX)
• Information
• Facilitation
• Transaction
• Integration
Possible internet universe
Figure 3.8 Independent trading exchange model.
ITXs are operated by a neutral third party that utilize strong industry and domain expertise to manage relationships and vertical-specific processes.
Their business plan is remarkably simple. ITXs offer a neutral site where purchasers and suppliers can buy and sell goods and services. In turn, the ITX collects user fees or transaction commissions for their Web develop-ment, promotion, and maintenance efforts. ITXs provide four major levels of functionality: information in the form of specialized industry directories, product databases and catalogs, discussion forms and billboards, and profes-sional development; Facilitation in their ability to match the specific needs of buyers with the capabilities of suppliers, typically through an auction or chat room; Transaction in the form of taking title to the goods and corresponding responsibility for accounts payable and receivable, pricing, terms manage-ment, and shipping and order status information; and, Integration function-ality permitting trading exchange services to fit into a larger supply chain and application integration strategy.
Private Trading Exchanges (PTXs).
◾ A serious problem with an ITX is that it
provided only simple buy-and-sell capabilities. Often what many companies really wanted from their B2B exchange was not only ease of doing business but also one-to-one collaborative capabilities with network partners, total visibility throughout the supply chain, seamless integration of applications, and tight security. The answer was the creation of a private exchange. In this model an enterprise and its preferred suppliers would be linked into a closed e-marketplace community with a single point of contact, coordination, and control. Often this type of e-marketplace is driven by a large market domi-nant company that seeks to facilitate transactions and cut costs while also cementing the loyalties of their own customers and suppliers. Figure 3.9 pro-vides an illustration of the PTX concept.
The decision to construct a PTX is based on several criteria. To begin with, firms with proprietary product/service offerings often feel that a PTX would allow them to use e-business tools while avoiding ITX comparison shoppers as well as protect the product’s unique value and brand. Second, companies possessing special process capabilities in areas such as customization or flex-ible manufacturing capabilities are excellent candidates for a PTX. Third, a PTX is a logical choice for companies with dominant market position or have little to benefit from the aggregation capabilities of an ITX or Consortium.
Fourth, a PTX provides enhanced privacy and security regarding pricing and volumes. Fifth, a PTX facilitates linkages across business systems, such as ERP. Sixth, a PTX offers firms the ability to move beyond mere transaction
Fourth, a PTX provides enhanced privacy and security regarding pricing and volumes. Fifth, a PTX facilitates linkages across business systems, such as ERP. Sixth, a PTX offers firms the ability to move beyond mere transaction