eBusiness - eCommerce
Introduction
One of the last and greatest promises during the Internet boom of the late 1990s was the impact of business-to-business (B2B) e-commerce on the traditional business landscape. Industry experts along with marketing "gurus" hyped B2B e-commerce so much that near panic often ensued, with business leaders demanding B2B solutions to be investigated at all costs. Thousands of online marketplaces (e-marketplaces) began to appear to satisfy the apparent need, but the Internet bubble soon burst and these e-marketplaces disappeared as fast as they had once materialized. B2B e-commerce quickly fell out of favour with the same lack of informed decision-making that had once started the whole process.
As with e-business in general, B2B e-commerce has quietly begun to mature out of the spotlight of speculation and hyperbole and is poised to truly redefine business processes in the new millennium. This document will introduce you to the basics of B2B e-commerce from the perspective of small and medium-sized enterprises (SMEs), separating fact from fiction, with a dose of common sense thrown in for good measure.
What is Business-To-Business E-Commerce?
Business-to-business e-commerce may be defined as the buying and selling of goods and services between companies online. There are two distinct aspects of B2B e-commerce that separate it from the more familiar business-to-consumer (B2C) "e-tailing" model:• Flexibility in pricing. Transactions between businesses often require variability in the pricing of products between purchasers. This concept of haggling is rare in the B2C marketplace.
• Integration of business systems. To realize increased productivity and savings, businesses involved in B2B will integrate their internal systems together, enabling less human intervention.
E-Procurement
Internet-based electronic procurement of goods and services between companies is called e-procurement. In the same way that B2C e-commerce is often referred to now as e-tailing, labeling B2B e-commerce as e-procurement better shows how B2B affects a company’s traditional supply chain.E-Marketplaces
Electronic marketplaces, also known as B2B exchanges, serve as electronic hubs bringing together suppliers and purchasers in common virtual environments. E-marketplaces are either "many-to-many," bringing together many buyers and sellersin a particular vertical market, or "one-to-many" where one major supplier or consumer will attract many of its trading partners to its e-marketplace. Over the past couple of years, it has been these private, one-to-many e-marketplaces that have proven to be the most successful.
Government E-Procurement
In their ever increasing need to label things they didn’t understand, marketing pundits began touting yet another e-commerce buzzword: B2G, or business-to-government, e-commerce. Buzzwords aside, e-procurement by various levels of government in Canada has been quite successful. MERX (www.merx.com/) is an online e-marketplace where businesses can bid on contracts from federal and provincial governments, and recently also the MASH (Municipal, Academic, Schools and Hospitals) sector. MERX has opened up more opportunities for SMEs to bid on government contracts. It isfree to browse MERX, and it’s available in both official languages. Alberta entrepreneurs can also access the Alberta Purchasing Connection at www.purchasingconnection.ca/ to bid on provincial government contracts.
Supply Chain Basics
The Bridgefield Group Inc. defines a supply chain as: The linked set of resources and processes that begins with the sourcing of raw material and extends through the delivery of end items to the final customer. It includes vendors, manufacturing facilities, logistics providers, internal distribution centers, distributors, wholesalers and all other entities that lead up to final customer acceptance. The extended supply chain for a given company may also include secondary vendors to their immediate vendors, and the customers of their immediate customers. The traditional model is known as the "push" model, whereby suppliers and vendors on top push their products or services through the supply chain to the end consumer. Costs are accumulated through the chain with the end consumer typically incurring much of the cost. "Pull" Model for Supply Chains E-Procurement has given rise to the concept of a "pull" model supply chains. In this model, the consumer has the most power in the supply chain, and suppliers must react to their demands. Greater efficiencies in the supply chain can occur, and the linear nature of the chain may be broken as customers become better able to circumvent middlemen and resellers.E-Procurement’s Effect on Supply Chains Besides the general shift to a "pull" model, e-procurement can have many other effects on the supply chain. For example, with greater visibility comes greater efficiency. Resellers are forced to truly bring some sort of added value to the table lest customers deal directly with their suppliers and remove them completely from the equation. Suppliers can now quickly respond to consumer demand and limit excessive inventory and associated storage costs. Shipping logistics become easier to control, and costs are reduced. Customers can handle most, if not all, shipping tracking, notification, auditing, documentation, and labeling online. This reduces paperwork and overall time required for products to pass through the distribution system.
Electronic Data Interchange
Electronic Data Interchange, or EDI for short, is the dinosaur of B2B e-commerce that still will not go away. The forerunner of today’s Internet-driven e-procurement, EDI was established in the early 1970s as a way to automate buyer-seller transactions, such as invoices and purchase orders. Large corporations began standardizing the format for electronic business documents, and industries started agreeing on common standards, administered by recognized standards organizations. The two most common EDI standards are EDIFACT in Europe and ANSI X.12 in North America. For many businesses, EDI is far too expensive to implement. All EDI traffic takes place over a value-added network (VAN) that exclusively transmits the data over a private network, offering transaction management and auditing. Businesses implementing EDI used to require expensive mainframe computers, with VANs that charged for each character transmitted.From a technical standpoint considering the Internet of today, EDI is well past its prime. Data transmission rates are often still at 9600 bits per second (for you non-techies, a cable or DSL Internet connection is about 200 times faster), standards differ across industries, and on the surface it is just a glorified email inbox. So why is it still around? Quite simply, the amount of time and money companies have invested in EDI over the years makes changing to a new system not very attractive. Industries spent years agreeing to EDI standards, and none are too willing to start the process again.
Wal-Mart: An E-Business Success Story
Possibly the single greatest success story of e-business and B2B implementation is that of the rise to dominance by Wal-Mart in the North American retail market. Love them or hate them, you have to hand it to Wal-Mart for their impressive growth in such a short time span. And arguably the single most important factor in this rise was their harnessing of the power of e-business, e-procurement, and the adjustment of internal processes to maximize this advantage.More than any other company, Wal-Mart has revolutionized supply chain management by using a “pull” model where customer demands drive the suppliers. Inventory control is finely honed and purchasing trends are available to suppliers, whom now must be able to quickly respond to the needs of millions of customers. The business decision to decentralize the procurement process means that front-line staff in every store can immediately order the appropriate stock electronically, which will in turn require rapid
turnout of product from the suppliers. This rapid replenishment system, coupled with accurate purchasing forecasting, helps Wal-Mart reduce overall costs.
While not always good for suppliers in general, Wal-Mart’s power as a giant in business has helped in establishing new standards for B2B e-commerce. Wal-Mart’s mindset of cutting costs at all costs resulted in them deploying EDI over the Internet to eliminate the costly VAN altogether. EDI over the Internet (EDI-INT) uses a new standard called AS2, a communication protocol that attempts to make EDI communications over the Internet both secure and reliable.
By mandating their suppliers to use AS2, Wal-Mart leads the way in creating a demand for a new generation of EDI, and in turn drives the whole world of e-business forward.
B2B for the SME
Your IT staff might only consist of your neighbour’s child who seems to know "everything about computers." Being a supplier for Wal-Mart or similar corporations is impossible due to minimal margins, lack of the enormous IT investment, and nowhere near the capacity to supply such a demand. So where can small and medium-sized enterprises benefit from business-to-business e-commerce?Purchasing Indirect Supplies
Indirect supplies, such as office furniture, pens, paper, and general office equipment, are often a first step for smaller businesses to implement B2B e-commerce. Many suppliers offer catalog-based websites for corporate purchases, and are similar to buying online from a B2C website. Corporate accounts can be established online, and organizations can save significant time and money onautomating this purchasing process.