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Using B2B Markets in the Supply Chain 37D480
Eric van Heck
[email protected] Helsinki, April 1, 2004
Copyright © E. van Heck, 2004
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Menu
Using B2B Markets in the Supply Chain –
Examples ChemConnect, Covisint, WorldWideRetail Exchange, Akzo Nobel, Dow Chemical
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Using B2B Markets in the Supply Chain
How can companies use auctions and B2B markets to realize value in the supply chain? What are the different types of B2B markets? How should companies choose to participate in them?
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Models of eMarkets/Exchanges Sellers Bilateral negotiations
Sales Auctions
(1)
(2)
One
Reverse Auctions (3)
Double Auctions (4)
Many
One
Many
Buyers
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C ase stud y #2 (in direct m aterials): G lo b al Airlin e (con t’d ).
S cenario: O ne hour reverse auction for P C C onsum ables
C o m p etitive R eactio n D u ring Auctio n
C ost S avings
M illions M illions
$ 3.0 -
$3
S u pplier 1 S u pplier 2
$ 2.5 -
$2 .6
3 7% S avings
S u pplier 3 S u pplier 4
$2
S u pplier 5
$ 2.0 -
$1.6
S u pplier 6 S u pplier 7 S u pplier 8
$ 1.5 -
$1
S u pplier 9
600
50 40 30 20 1 0 10 20 30 40 50 B id Tim e R em aining (m inute s)
0 60
$0 H isto ric C ost
W inning Co st
9 suppliers, 46 total bids W inner bid 10 tim es with an av erage price drop of $106k per bid 22
© A ccentu re 2001
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Auction evaluation
For the Host/Buyer –
Operational: price savings, time savings
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Tactical:
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Strategic: incentives for collaboration like joint process improvements
risk management tool importance of exact specifications
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Auction evaluation
For the Bidder/Seller –
Operational: selling, time savings
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Tactical:
level playing field benchmarking tool
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Strategic:
business reorientation
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Auction evaluation
For the Intermediary/Auctioneer –
Operational: host satisfaction bidder satisfaction
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Tactical:
number of sellers/buyers/auctions lowering transition risks
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Strategic:
long term revenue generation new sources of value creation
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B2B Exchanges
Independent exchanges: third parties that link buyers and sellers – examples PaperX, ChemConnect, PartMiner
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B2B Exchanges
Consortia exchanges: set up jointly by a group of key players – examples Covisint, Exostar, World Wide Retail Exchange
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B2B Exchanges
Private exchanges: set up by individual companies to directly reach their key suppliers or customers – examples Cisco, Akzo Nobel, Volkswagen
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Independent Exchanges
Consortia Exchanges
Private Exchanges
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Procurement (indirect materials)
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•••
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Procurement (direct materials)
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•••
Settlement and payment
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Fulfillment and logistics
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••
•••
Product development
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•••
Supply chain planning and collaboration
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Customer service and support
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•••
Capability Community content
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The Portfolio Imperative
Example the Dow Chemical Company. 3,500 chemical, plastics, and agricultural products and services 170 countries, buys and sells through a portfolio of several B2B markets.
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ChemConnect
Elemica MyAccount @Dow
Dow 1:1
Omnexus Sourcing, pricing Contract fulfillment
Production
Non-production Dow e-Mart
SciQuest
Direct Connection Private Exchange Consortium eMarket
TradeRanger ZoneTrader Buy
Sell
Independent eMarket (w/equity position)
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Managing the Integration Points
Implementing a portfolio is not easy Companies need to efficiently interconnect their legacy systems and business processes to the electronic markets and their other participants
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Company X System a
eMarket 1 System b
eMarket 2 System c
eMarket 3 System d
Legacy Systems
Company X
Company X
Company X
System a
System a
System a
eMarket 1 System b System c
System b
eMarket 2
eMarket 2 eMarket 3
eMarket 3 System d
Ad Hoc Integration
Common System
System c
System c
eMarket 3 System d
eMarket 1
eMarket 1 System b
eMarket 2
Internal and External Integration Hubs
System d
Common System with External Integration Hub
Figure 2: Basic Integration Strategies
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Plugging into Markets
There is rarely a “one size fits all” market to meet a company’s varied needs. Carefully manage the integration of electronic markets with the existing processes and systems. Create commitment by your sell-side and buyside people and let them communicate.
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Rules for Market Ownership
Critical Question
Who should own the electronic markets?
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Rules for Market Ownership
Simple rule: The market participants should choose the ownership structure that maximizes their operational benefits and profit potential from the market-making activity.
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Models of Market Ownership Type of Benefit to Participants Common
Independent Exchanges Consortia Exchanges Provides a common platform to buyers and sellers – ideal for commodities with large numbers of buyers and/or sellers (1)
Provides a common platform to participants. Owned and driven a subset of participants who wish to capture returns instead of sharing profits with third parties. (2)
Private Exchanges Proprietary
Not Attractive for participants(4)
Low
Provides platform for trading that is proprietary to participants. Owner uses platform to maximize benefits for themselves.(3) High
Level of Benefits as a Proportion of Costs to Make Market2
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Building Market Strategies
Creating and Electronic Markets Vision Selecting Strategies for Market Implementation and Participation Mobilizing for Market Implementation
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Example: Article Choudhury, Choudhury, Hartzel, Hartzel, and Konsynski (1998)
Two questions: – When do buyers use an electronic market? – How do electronic markets affect prices, inventory levels, and the role of brokers? Research methods – –
Aircraft parts industry – Inventory Locator Service (ILS) Interviews (8) and Survey (30 responses – airlines)
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Buyer 1
Seller 1
Buyer 2
Seller 2
Buyer 3
Electronic Market
Seller 3
Buyer 4
Seller 4
Buyer 5
Seller 5
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An electronic market is an interorganizational information system through which multiple buyers and sellers interact to accomplish one or more of the following market-making activities: – – –
Identifying potential trading partners Selecting a Specific Partner Executing the Transaction
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Figure Research Model Extent of Usage of Brokers
Inventory Levels
Product Specificity Complexity of Product Description
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Use of Electronic Markets Product Differentiation
+ -
Prices
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Scope of the Electronic Market (Supports Selection, Price Information)
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Propositions 1 and 2
1. Buyers will use electronic markets for the purchase of products that are low in asset specificity and complexity of description. 2. Electronic markets will lower prices (1) in commodity markets and (2) in markets with differentiated products if the system supports selection with price information. Electronic markets will not lower prices if the market is differentiated and the system supports only identification with product information.
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Propositions 3 and 4
3. Electronic markets will reduce the extent of usage of brokers by buyers. 4. Electronic markets will lower the inventory levels maintained by buyers.
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Figure Revised Model Extent of Usage of Brokers Redefinition of Brokers’ Valueadded Roles Product Specificity
+
Complexity of Product Description Frequency of Purchase
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Product Value
Cost of Access Information Verification
Use of Electronic Markets
Market Variability
Fragmentation of Buyer Population
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+
Scope of the Electronic Market (Supports Selection, Price Information)
+ Prices
Product Differentiation Purchase Criterion (not price)
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Using Markets Creatively
How to avoid the fact that sellers will get frustrated by ‘price-only’ auctions? How to negotiate about the value-added dimensions of products and services in reverse auctions?
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This is off course what makes sellers uncomfortable
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Using Markets Creatively
Example: Market Maker NegoMetrix – www.negometrix.com – in the Netherlands Meticulously determine and quantify ALL non-price decision factors BEFORE the auction. An intelligent internet-based multi-attribute decision support software analyses the competing offers. Each tender procedure must outline exact and discriminative decision factors that must be weighted / prioritized. Competitive offers are evaluated within this decision model.
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77 (!) criteria in 10 dimensions 90% 80% nutritional aspect taste presentation
70% 60%
Brandname quality demands product demands packaging logistics certificates reputation and reliability
50% 40% 30% 20%
Offer D
offer B
offer E
offer A
offer X
offer F
offer C
0%
offer G
10%
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Key for sellers and buyers
Combine the speed, transparency, and accuracy -introduced by means of internet auctions - with negotiations about the nonprice dimensions of products or services. Suppliers prefer a ‘fair’ auction; fairness in preparation, fairness in bidding, and fairness in evaluating the winner - the winning rules during the auction are the winning rules after the auction.
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The Ultimate Market “One that captures the feel and trust of a physical community, but leverages the power and efficiency of new technologies for the benefit of sellers and buyers”
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