B2B e-Business

Robert J Mockler, Dorothy G Dologit, Marc E Gartenfeld. Electronic Commerce: Concepts, Methodologies, Tools, and Applications. Volume 3. Contemporary Research in Information Science and Technology Hershey, PA: Information Science Reference, 2008.

INTRODUCTION

Every organization can be viewed from two perspectives. There are external processes such as procurement and sales, and internal processes such as management and operations, finance, marketing, and human resources.

This article primarily focuses on external, commercial e-business processes. B2B (business-to-business) e-business is the sale of products or services, or information exchange, among two or more businesses through electronic technology, usually involving the Internet, through a public or private exchange. The following background section gives a very brief general overview of B2B e-business history. In the main thrust of this article, we discuss making the B2B decision by examining key B2B business requirements and benefits, as well as describing basic approaches to B2B e-business implementation. In the subsequent section, the article provides a future outlook for e-business.

BACKGROUND

During the technological explosion of the late 1990s, virtually every company in the world was talking about B2B. The concept was sound and the possibilities were endless, so many companies rushed into implementing something, anything that would make them part of this new business revolution. As often happens when concepts are implemented, many unforeseen problems arise during the early stages of their application. Although the development of B2B e-business has provided opportunities for organizations to improve their purchasing systems and so enhance performance and profitability, it is not the magic solution once believed, but rather just another useful business tool when implemented under the right circumstances.

Despite the burst of the dot.com bubble and the global recession, online B2B trading exchanges continue to expand. Online B2B e-marketplaces have remained resilient by providing valuable advantages over off-line transactions, including lower costs for buyers, greater access to customers for suppliers, and increased transparency throughout the supply chain for all participants (Krell, 2002). For example, members of the WorldWide Retail Exchange, an online B2B exchange, have saved over $1 billion since 2000 when the exchange was founded (?Survey,? 2004).

Internet-based B2B e-business tools help companies master a multitude of objectives, ranging from reducing raw material, process, and transaction costs as well as cycle times, error rates, and inventory, and it improves transparency (Hartman, Salehi, & Vallerien, 2003).

In 2001, B2B e-business represented about one third of all e-business volume on the Internet, but it was expected to grow at an accelerated rate and eventually become the largest segment of e-business.

MAIN THRUST OF THE ARTICLE

Before the appropriate B2B e-business implementation approach can be determined, a company needs to identify key business requirements and benefits. Once this has been established, the company can then choose from various implementation approaches the one that fits the determined requirements and benefits. The B2B implementation approaches discussed in this article have been derived from researching thoroughly company experiences as well as theoretical studies. Based on these experiences and studies, the ways companies have targeted their B2B implementation endeavors can be grouped into four basic approaches, which will be discussed later in this section.

Identifying Key Business Requirements and Benefits

Planning is the first step to the successful application of any e-business strategy. A company needs to identify key or core business processes in its specific company situation, and the benefits to be derived from e-business B2B applications within these key processes. A well-designed B2B e-business system can be extremely valuable in achieving basic strategic management objectives in many different areas of profit-generating enterprises including increasing efficiency and reducing costs, improving management control, and expanding revenues.

Improve Purchasing Efficiency and Reduce Procurement Costs

This was initially and continues to be a major application area for B2B. Procurement in its conventional form is a costly, labor-intensive, paper-based process. Purchasing personnel often complain that a high percentage of their time is spent on non-value-added activities such as data entry, correcting paperwork errors, expediting delivery, or solving quality problems. Managing supply chains through public or private online B2B exchanges enables companies to (a) directly improve their order-to-fulfillment cycle by streamlining work-flow and business processes so as to achieve better order processing and tracking, (b) better leverage company spending and increase return on investment, and (c) ultimately optimize overall procurement efficiency. This can literally save a company millions of dollars.

For example, Unilever, a major consumer-products company, was able to cut $902 million in procurement costs over a 2-year period, and by the end of 2002, was expected to have achieved more than $1.58 billion in total savings from procurement efficiencies with its new B2B system. These improvements were achieved through Unilever?s replacement of a hodgepodge of procurement systems in use across dozens of product divisions with standardized e-procurement, online-auction purchasing management, and demand-planning systems (Hicks, 2002).

Improve Overall Controls

The information exchanged among companies and their suppliers through B2B portals creates a strategic partnership environment that identifies and builds partnerships with new suppliers worldwide, strengthens relationships and streamlines sourcing processes with current business partners, and rapidly distributes information and specifications to business partners. Internet-based buy sites enable companies to manage inventory levels more efficiently by providing access to demand levels through B2B portals. Through B2B exchanges, companies can receive rapid responses, shorten fulfillment cycles, and implement just-in-time procurement strategies, which help reduce lag times and allow companies to more effectively control inventory levels and so carry less inventory reserves on hand.

A good example of this is Cisco Systems. The sharing of information between Cisco Systems, a large Internet product provider company, and its suppliers on customer demand, product defect rates, and engineering reportedly enabled them to substantially reduce manufacturing recycle times and build better products (Corbitt, 2002).

Expand Revenues

The public exchange of information provided through B2B exchanges has allowed many companies that sell to other companies to reach a greater number of potential commercial buyers of their products, which has lead to increased sales. It also provides greater visibility between customers and suppliers. Web exchanges enable customers and suppliers to peer into one another?s operations via a secure Internet connection, and decrease the suppliers? time to market with new products. Also, sellers gain instant access to global buyers, with over $1 billion in purchasing power.

B2B E-Business Implementation Approaches

There are four general B2B implementation approaches in use. The first is independent B2B marketplaces, such as Commerce One, Ariba, and Freemarkets. The second approach discussed is the private B2B approach, such as the one found at Unilever and Cisco. A third commonly encountered B2B implementation approach involves consortiums, as have been formed in the auto, aviation, chemical and petroleum, building-materials, aerospace, and retailing industries. There is a fourth, transitional approach that was implemented by GE (General Electric), for example.

Independent B2B Marketplaces

The first approach discussed, which involves an existing company finding an independent B2B marketplace (e-marketplace), is a commonly encountered one. Many companies begin the B2B integration process by focusing on the purchasing cycle. Obtaining goods from suppliers using independent B2B marketplaces very often is the fastest and most economical way to acquire B2B capabilities. This is done by selecting an independent B2B provider, such as Commerce One, Ariba, or Freemarkets, to come in and integrate the company?s internal systems with the selected independent market exchanges (e-marketplace).

An independent B2B marketplace or e-marketplace is an Internet destination where businesses from around the world can come together to buy and sell goods and services in an auction format. The destination and the auction are controlled and managed by the independent B2B provider. Buyers prepare bidding-project information and post them on the site. Suppliers then download the project information and submit their bids. Buyers evaluate the suppliers? bids and may negotiate electronically to achieve the best deal. The buyer then accepts the bid of the supplier that best meets their requirements, and the sale is finalized. Purchasers and suppliers can either pay a general fee, a per-transaction fee, or a combination of the two to the B2B provider, otherwise known as the Web host. Each one of these B2B providers has its own software applications and host Web sites.

For example, Commerce One uses its trademarked Enterprise Buyer proprietary software to link companies to all e-marketplaces of the Global Trading Web community on its Web site CommerceOne.net. Commerce One?s Global Trading Web is the world?s largest B2B trading community and provides unprecedented economies of scale for buyer organizations (http://www.commerceone.com/company/global_trading.html). This software can be purchased and installed by an existing company in order to obtain access to the Global Trading Web community that enables commercial transactions to take place between e-marketplaces.

Private B2B Exchanges

The second approach discussed is private B2B exchanges. A private B2B exchange is an e-marketplace created by a single company to provide e-business capabilities to its business units and preferred trading partners (http://www.commerceone.com/company/global_trading.html). In 2000, in the early stages of e-business development, many companies trying to be ahead of the curve jumped into public B2B marketplaces usually run by third parties. They soon discovered that there were many inherent problems. Although at times they were obtaining better prices, many times the diminished quality and increased rate of defects in the products were hurting their bottomline gain. There were also problems in returning defective items, receiving orders when promised, and maintaining continuity in the supply chain (Prince, 2001).

Today, more and more businesses with the necessary resources are developing their own private exchanges. The e-market focus of some companies, such as Wal-Mart, has turned away from public exchanges because finance, supply chain, purchasing, and IT managers realized that, in many cases, their systems and employees were ill-equipped to handle the technical and procedural requirements of large public exchanges (Krell, 2002). Wal-Mart has invested in middleware or enterprise application integration (EAI) technology to link its internal applications together and to a few (up to 12) critical suppliers in the supplychain process. The real value of e-procurement, e-billing, and electronic supply-chain initiatives is realized through real-time, hard-coded integration (Krell).

Other companies, such as Siemens AG, have turned to private exchanges in order to limit access to procurement information (Konicki, 2001). Siemens prefers a private exchange because it does not want its competitors to have access to its production plans. Private exchanges are gaining momentum because, for those companies that have the resources to develop them, they are able to deliver the capabilities many public e-marketplaces promised but have not delivered: the ability to centrally manage procurement across many business units, the ability to enable realtime design collaboration and integration with back-end systems, and the linkage of production-, inventory-, warehouse-, and order-management systems.

Consortium

The third B2B implementation approach discussed is a consortium: a quasipublic online marketplace approach. A consortium is a group of companies within a particular industry establishing an exchange connecting each of them and their suppliers. Today, there is a consortium exchange in almost every industry. Consortium members fund most of these exchanges.

One example of a consortium is found in the auto industry. Ford, General Motors, and Daimler Chrysler together established Covisint.com as a global, independent e-business exchange. Covisint is the central hub where original equipment manufacturers (OEMs) and suppliers come together to do business in a single business environment using the same tools and interface. Covisint enables companies to compress planning cycles and enhance supply-chain planning (http://www.covisint.com/about). In February 2002, Covisint was handling 100 million supply-chain procurement transactions per month. These transactions take place between the exchange?s members and more than 2,000 of their suppliers (Krell, 2002). In 2004, however, Covisint experienced some major problems that led to the acquisition of the company by two other firms, Compuware Corp and Freemarkets, Inc. (Sullivan & Dunn, 2004).

Transitional

The fourth approach involves an existing company moving from a private B2B exchange to an independent, external marketplace venture. A good example of this would be General Electric (http://www.gegxs.com/gxs/about). General Electric, given its vast capital resources and diversity across many industries, decided to develop and establish its own B2B software and private B2B operations. Subsequently, it used this experience to set up its own external, independent B2B exchange (called GE Global eXchange Services) to compete with the likes of Commerce One and Ariba in the B2B provider market. This type of approach would require a large amount of resources and is therefore not practical for many smaller businesses. Even for businesses the size of GE, the resources necessary to maintain such an exchange can become cost prohibitive (Barlas, 2002).

FUTURE TRENDS

B2B e-business experienced an initial boom based on unrealistic projections and expectations, followed by a few years of gloom based on the process of a new technology outgrowing its adolescent phase of development.

Recent projections by Standard & Poor?s, however, indicate that the future of B2B e-business looks bright. The growth of B2B e-business is forecasted to reach $3.6 trillion in 2005, $4.9 trillion in 2006, and $6.4 trillion in 2007 (Kessler, 2004).

One of the more successful B2B implementation approaches for the future seems to be that of large, private exchanges, such as Ariba and Freemarkets. According to Ordanini, Micelli, and Di Maria (2004), large, private B2B exchanges especially represent a promising phenomenon and offer superior capabilities of generating higher turnovers than smaller niche exchanges.

Electronic B2B transactions, as shown earlier, are already improving the competitiveness of enterprises through sinking costs, faster information, and enhanced flexibility, among other benefits. In the future, however, B2B will be not only the application of technologies, but also a motor of change for economic processes and industry structures: B2B applications have an enormous potential for the alteration of economic processes in the direction of the knowledge society (Schedl & S?lzle, 2004).

In the B2B e-business arena, increased activity through mergers and acquisitions is expected to continue into the future, not only in the middle market among small- and medium-sized competitors, but also among the larger B2B exchanges (?M&A Outlook,? 2005).

In the near future, more and more companies, especially finance and investment firms, will be adding multilingual dimensions to their B2B e-business strategies (?IndyMac Bank,? 2004).

Manoj Nigam, president of Micro-D, predicts that in 2005, we will see leading retailers and manufacturers ?completing the implementation of what we define as a ?full-circle? B2B? (Carroll, 2004). Nigam describes this as a sales and transaction process that begins with accurate and standardized electronic catalogs from manufacturers and flows through to purchase orders and PO acknowledgments.

Because of these and other trends not mentioned here, B2B e-business seems to be on the path to a healthy recovery, ensuring a profitable marketplace for its many competitors.

CONCLUSION

The recent economic downturn has forced companies, with reduced budgets and shrinking bottom lines, to perform internal analysis in order to determine which B2B implementation approach, if any, to select and integrate in order to achieve the maximum benefits of e-business. Especially in light of the upcoming B2B e-business recovery and the positive future trends in this industry, as indicated above, a company should carefully select and integrate B2B e-business into their existing business in a way that is most appropriate for the company?s current situation, which makes this process a situational, contingency-based one. Organizations should be aware that although e-business may provide many benefits and the future looks bright, it is not the magic solution it was once assumed to be but rather just another potential business tool to be implemented under the right circumstances.

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