CISCO SYSTEM`S CONNECTION ONLINE

Chapter Four: B2B E-Commerce
4-1
ONLINE FILE W4.1
Application Case
CISCO SYSTEM’S CONNECTION ONLINE
Customer Service
Cisco began providing electronic support to its business in
1991 using value-added networks (VANs). The first applications offered were software downloads, defects diagnoses, and
technical advice. In spring 1994, Cisco moved its system to
the Web and named it Cisco Connection Online (CCO). (Not to
be confused with Cisco Learning connection, which is related
to e-learning at Cisco, see Chapter 5.) By 2004, Cisco’s
customers and reseller partners were logging onto Cisco’s
website over 2 million times a month to receive technical
assistance, place and check orders, or download software. The
online service has been so well received that nearly 85 percent
of all customer service inquiries and 95 percent of software
updates are delivered online. The service is delivered globally
in 16 languages. CCO is considered a model for B2B success,
and several books have been written about it.
Online Ordering by Customers
Virtually all of Cisco’s B2B products are made to order. Before
CCO, ordering a product was a lengthy, complicated, and
error-prone process because it was done by fax or by “snail
mail.” Cisco began deploying Web-based commerce tools in
July 1995, and within a year its Internet Product Center
allowed users to configure and purchase any Cisco product
over the Web. Today, a business customer’s engineer can sit
down at a PC, configure a product, and find out immediately
if there are any errors in the configuration (feedback is given
by intelligent agents).
By providing online pricing and configuration tools to
customers, 99 percent of orders are now placed through CCO,
saving time for both Cisco and its customers.
Tracking Order Status
Each month Cisco used to receive over hundreds of thousands
of order-status inquiries such as, “When will my order be
ready?” “How should the order be classified for customs?” “Is
the product eligible for NAFTA agreement?” “What export
control issues apply?” Cisco provides self-tracking and FAQ
tools so that customers can find the answers to many of their
questions by themselves. In addition, the company’s primary
domestic and international freight forwarders update Cisco’s
database electronically about the status of each shipment.
CCO can record the shipping date, the method of shipment,
and the current location of each product. All new information
is made available to customers immediately. As soon as an
order ships, Cisco notifies the customer via e-mail.
Benefits
Cisco reaps many benefits from the CCO system. The most
important benefits include:
◗ Reduced operating costs for order taking. By taking its
order process online, Cisco has saved several hundred
dollars per year, or approximately 20 percent of its total
operating costs. This is due primarily to increased productivity of the employees who take and process orders.
◗ Improved quality. The system facilitates Cisco’s Six Sigma
mission.
◗ Enhanced technical support and customer service. With
more than 90 percent of its technical support and customer
service calls handled online, Cisco’s technical support
productivity has increased by 250 percent per year.
◗ Reduced technical support staff cost. Online technical
support has reduced technical support staff costs by
roughly $125 million each year.
◗ Reduced software distribution costs. Customers
download new software releases directly from Cisco’s site,
saving the company $180 million in distribution,
packaging, and duplicating costs each year. Having
product and pricing information on the Web and
Web-based CD-ROMs saves Cisco an additional $50 million
annually in printing and distributing catalogs and
marketing materials to customers.
◗ Faster service. Lead times were reduced from 4 to 10 days
to 2 to 3 days.
The CCO system also benefits customers. Cisco customers
can configure orders more quickly, immediately determine
costs, and collaborate much more rapidly and effectively with
Cisco’s staff. Also, customer service and technical support are
faster.
In 2006, Cisco moved to selling online its hardware
(routers, switches, and VoIP) and the software that powers
them separately. This unbundling gives customers more
flexibility (see Hoover 2006).
Questions
1. List the capabilities of the Cisco Online system.
2. What are the benefits of the system to Cisco?
3. What are the benefits to Cisco’s customers?
REFERENCES FOR ONLINE FILE W4.1
Cisco Annual Report. Cisco Systems, 2005. cisco.com/web/
about/ac49/ac20/ac19/ar2005/index.html (accessed
December 2010).
Hoover, J. N. “The Cisco Premium.” InformationWeek,
July 31–August 7, 2006.
4-2
Part 2: EC Applications
ONLINE FILE W4.2
Application Case
BOEING’S SPARE PART MARKETPLACE
Boeing (boeing.com) is the world’s largest maker of airplanes
for commercial and military customers. It also plays the role
of intermediary in supplying replacement and maintenance
parts to airlines. Unlike other online B2B intermediaries,
revenue from its intermediary activities may be a minor
concern to Boeing, which makes most of its revenue from
selling airplanes. The major goal of Boeing’s intermediary
parts market, called Part Analysis and Requirement Tracking
(PART), or Boeing Spares, is supporting customers’
maintenance needs as a customer service.
The objective of PART is to link airlines that need
maintenance parts with suppliers who are producing the parts
for Boeing aircraft (see boeing.com/commercial/spares/
part_page.html). Boeing’s online strategy is to provide a single
point of online access through which airlines (the buyers of
Boeing’s aircraft) and the maintenance and parts providers
(Boeing’s suppliers) can access data about the parts they
need. These data might come from the airframe builder, the
component supplier, the engine manufacturer, or the airline
itself. Thus, Boeing is acting as an intermediary between
the airlines and the parts suppliers. With data from 300 key
suppliers of Boeing’s airplane parts, Boeing’s goal is to provide
its customers with one-stop shopping for online maintenance
information and ordering.
The Spare Parts Business Using
Traditional EDI
Ordering spare parts had been a multistep process for many of
Boeing’s customers. For example, an airline’s mechanic
informed the purchasing department of his company that a
specific part was needed; the purchasing department
approved the purchase order and sent it to Boeing by phone
or fax. The mechanic did not need to know who produced the
part because the aircraft was purchased from Boeing as one
body. However, Boeing had to find out who produced the part
and then ask the producer to deliver the part to the customer
(unless Boeing happened to keep an inventory of that part).
The largest airlines began to streamline the ordering
process about 20 years ago. Because of the volume and
regularity of their orders, they established EDI connections
with Boeing over VANs. Not all airlines were quick to follow
suit, however. It took until 1992 to induce 10 percent of the
largest customers, representing 60 percent of the volume, to
order through EDI. The numbers did not change much until
1996 due to the cost and complexity of VAN-based EDI.
Debut of PART on the Internet
Boeing viewed the Internet as an opportunity to encourage
more of its customers to order parts electronically. With the
initial investment now limited to a standard PC and basic
Internet access, even its smallest customers can now
participate in PART. Because of its interactive capabilities,
many customer service functions that were handled over the
telephone are now handled over the Internet.
In November 1996, Boeing introduced its PART page on
the Internet, giving its customers around the world the
ability to check parts availability and pricing, order parts,
and track order status, all online. Less than a year later,
about 50 percent of Boeing’s customers used PART for parts
orders and customer service inquiries. In its first year of
operation, the Boeing PART portal handled over half a million inquiries and transactions from customers around the
world. Boeing’s spare parts business processed about 20 percent more shipments per month in 1997 than it did in 1996
with the same number of data entry people. In addition, as
many as 600 phone calls a day to customer service staff were
eliminated because customers had access to information
about pricing, availability, and order status online. The use
of PART online resulted in fewer parts being returned due to
administrative errors. Furthermore, the service may encourage
airlines to buy Boeing aircraft the next time they make an
aircraft purchase. (For a demo of PART, visit boeing.com.)
The system is simple and accessible to any authorized
Boeing customer. Its major capabilities are:
Parts: Customers can view up-to-date part information such
as prices, availability, and interchangeability. Partial part
number search is available.
Orders: Customers can order as many as 25 items at a time,
change an existing order, or check the status of their orders.
Quotes: Customers can request a price quote or view existing
price quotes. Receive quote information back via e-mail.
Contacts: Instantly retrieve information on how to contact
people at Boeing Spares.
Help: Get answers to questions in PART’s “Help” and
“Frequently Asked Question” sections.
Accuracy and speed: Customers who are currently telephoning, faxing, telexing, or e-mailing orders benefit from
more accurate orders submitted via the system. In addition, orders are processed and acknowledged in seconds.
Cost saving: The Boeing PART Page may prove to be less
expensive than other communication methods, depending
on the customer’s local cost of Internet access.
Minimal training: The Boeing PART Page is designed to be
intuitive for even the first-time user. The screens and data
entry fields are uncomplicated and easy to navigate.
As a result of PART’s success, Boeing started a complementary EC initiative called Boeing On-Line Data (BOLD),
which enables mechanics and technicians at the airport to
access the technical manuals they need for repairs. These
manuals are now available in digital form, and mechanics
and technicians can access them via wire line or wireless
devices. In May 2000, Boeing also launched a new e-business
site for airline customers based on PART and BOLD.
By 2009, Boeing’s PART webpage included up-to-date
parts information, such as availability, price, and whether a
part is interchangeable with another part. Orders are
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Chapter Four: B2B E-Commerce
ONLINE FILE W4.2
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(continued)
acknowledged and processed in seconds. Orders can be
placed or revised on the site in real time. Multiple orders can
be analyzed in order to simplify the procurement process.
Security safeguards allow specification of the level of
personnel authorized to place orders. Other options available
include ordering as many as 25 items at a time; getting a
copy of the invoice directly from the PART page;
automatically requesting a quote for parts that are not priced
that is returned by e-mail; and, obtaining customs
invoice/packing sheet for international shipping.
Questions
1. What motivated Boeing to create PART?
2. What motivated the move from EDI to the Internet?
3. List some of the information provided by PART.
4. List and briefly discuss the benefits of PART to Boeing.
5. List and briefly discuss the benefits of PART to
Boeing’s customers.
REFERENCES FOR ONLINE FILE W4.2
“Boeing Launches New E-Business Web Site.” Aerotech
News and Review—Journal of Aerospace and Defense
Industry News (May 12, 2000).
Boeing. “Boeing Part Page: Fast, Easy Access to the Part
You Want and Need.” 2009. boeing.com/commercial/
aviationservices/brochures/Boeing_Part_Page.pdf
(accessed December 2010).
Boeing Commercial Aviation. boeing.com/commercial/
spares/parts.html (accessed December 2010).
4-4
Part 2: EC Applications
Online File W4.3 Implementing E-Procurement
E-procurement is relatively easy to implement (see Zhao 2006). Channel conflict usually does not occur, and resistance to
change is minimal. Also, a wide selection of e-procurement software packages and other infrastructure is available at a
reasonable cost. For details, see en.wikipedia.org/wiki/E-procurement.
MROs often are the initial target for e-procurement. However, improvements can be made in the purchasing of direct
materials as well. All existing manual processes of requisition creation, requests for quotation, invitation to tender,
purchase order issuance, receiving goods, and making payments can be streamlined and automated. However, to most
effectively implement such automated support, the people involved in procurement must collaborate with the suppliers
along the supply chain, as we will describe in Chapter 6.
Putting the buying department on the Internet is the easy part of e-procurement. The more difficult part is
implementing it. The components of e-procurement systems are shown in Exhibit W4.3.1. For a model that simplifies the
procurement process by performing tasks electronically, see Podlogar (2006).
EXHIBIT W4.3.1 Potential E-Procurement Components
Module
Catalog Management Module
• Facilitates the creation of products, subassemblies,
and components in a hierarchical manner.
Collaborative Planning Module
• Supports collaborative planning between buyers
and suppliers.
Online Purchase Module
• Supports both systematic and spot procurement for
direct and indirect materials and for contracts
(for both goods and services).
Purchase-Order Handling Module
• Enables buyers to place purchase orders via on/off
item master, reverse auction, contract
purchasing, and spot market requisition.
Document Service Module
• Facilitates a broad range of services for
procurement documentation such as RFQ, RFP,
PO, goods receipt, and accounts payable.
Historical Performance Service Module
• Provides easy access to historical statistics of all
transactions.
Components
• Catalog manager
• Catalog exchanger
• AVL (approved vendor list) editor
•
•
•
•
•
•
•
Request for quote (RFQ)
Request for proposal (RFP)
Demand forecaster
Contract manager
Inventory manager
Information flow controller
Real-time integration to project management,
change management, and financials
• Management of compliance with quality and
safety standards
• Purchase via contracts
• Purchase from catalog
• Reverse auction service for direct/indirect
materials
• Reverse auction service for contracts
• Auction service
•
•
•
•
Purchase order manager
Demand aggregator
Consignment manager
Just-in-time order manager
• Document indexing
• SML exchanger
• Document version controller
• Periodical reports
• Customized reports
• Statistical analysis
(continued)
Chapter Four: B2B E-Commerce
Online File W4.3 (continued)
Module
Information Service Module
• Provides a unified information and message service
that allows users to receive/send e-mails and
view status of procurement activities.
System Administration Module
• Provides tools that enable the company to control
procurement activities.
Components
•
•
•
•
•
Message/task center
Status of procurement operations
Customized exceptional alerts
Smart search engine
Online negotiation/discussion service
•
•
•
•
•
•
Company master data organizer
Product group builder
Workflow designer
Authorization matrix
Look and feel designer
User/department profile organizer
Sources: Compiled from e-jing.net and oracle.com (both accessed January 2011).
The following are some of the major implementation issues that companies must consider when planning
e-procurement initiatives:
◗ Fitting e-procurement into the company’s EC strategy. For example, suppose the strategy is outsourcing. In this case,
e-procurement can be done in an exchange, or the customer can buy at the sellers’ websites.
◗ Reviewing and changing the procurement process itself. E-procurement may affect the number of purchasing agents,
where they are located, and how purchases are approved. The degree of purchasing centralization also may be affected.
◗ Providing interfaces between e-procurement and integrated enterprise-wide information systems, such as ERP or
supply chain management. If the company does not have such systems, it may be necessary to do some restructuring
before moving to e-procurement.
◗ Coordinating the buyer’s information system with that of the sellers. Sellers have many potential buyers. For this
reason, some major suppliers, such as SKF (a Swedish automotive parts maker; see skf.com), developed an integrationoriented procurement system for its buyers. The SKF information system is designed to make it easier for the procurement
systems of others (notably the distributors in other countries) that buy the company’s bearings and seals to interface with
the SKF system. The SKF system allows distributors and large buyers to gain real-time technical information on the
products, as well as details on product availability, delivery times, and commercial terms and conditions.
◗ Consolidating the number of regular suppliers and integrating with their information systems and, if possible, with
their business processes. Having fewer suppliers minimizes the number of connectivity issues that need to be resolved
and will lower expenses. Also, with fewer suppliers, the company will buy more from each supplier, allowing the company
to get a quantity discount. Collaboration with each supplier also will be enhanced.
E-Sourcing
When implementing e-procurement, companies also should evaluate e-sourcing, the
processes and tools that electronically enable any activity in the procurement process, such
as quotation/tender requests and responses, e-auctions, online negotiations, and spending
analyses (see ariba.com/solutions/sourcing.cfm and Johnson and Klassen 2005). E-sourcing is
the automation of strategic sourcing.
Strategic sourcing is the process of identifying opportunities, evaluating potential sources,
negotiating contracts, and managing supplier relationships to achieve corporate goals, such as
cost reductions and increased quality and service as well as reductions in sourcing cycle times.
E-sourcing is about removing unnecessary cost (i.e., waste and inefficiency) from the supply
chain and providing competitive advantage (Minihan 2009).
Strategic sourcing requires a holistic process that automates the entire sourcing process,
including order planning, RFQ creation, bid evaluation, negotiation, settlement, and order
e-sourcing
The process and tools that
electronically enable any
activity in the sourcing
process, such as quotation/
tender submittance and
response, e-auctions,
online negotiations, and
spending analyses.
(continued)
4-5
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Part 2: EC Applications
Online File W4.3 (continued)
execution. The promise of strategic sourcing is in reducing total acquisition costs while increasing value. A fundamental
shortcoming of sourcing tools today is their inability to allow the creation of complex RFQs that allow for a variety of bid
structures that exploit complementarities and economies of scale in suppliers’ cost structures.
E-sourcing attempts to improve strategic sourcing by making it more effective and efficient. For example, Moai
Technologies (moai.com) provides the following e-sourcing solutions:
◗ Just-in-Time Sourcing (JITS). Moai’s JITS integrates strategic consulting services with licensed software products. The
software directs customers through the e-sourcing process, including negotiating with vendors and securing reliable suppliers, thereby lowering sourcing costs. According to Moai (2006), CompleteSource provides customized low-cost solutions
for a flat fee. Those who are ready to take complete control of their sourcing process will benefit most from:
◗ High ROI—fixed subscription cost with huge savings
◗ Maximum customization—can be installed into unique workflows, applications, and processes
◗ Maximum control—“Behind the firewall” solution provides flexibility and control in administering, scheduling, branding,
and process integration
◗ Strategic Consulting Services. RapidSource, Moai’s strategic consulting program, promotes testing and validation of
e-sourcing to those new to the concept. With this guidance, users are guaranteed a return on investment in the program.
◗ Hosted Sourcing Software. Delays, IT complexities, and costs associated with in-house deployments are eliminated with
Moai’s hosted services.
REFERENCES FOR ONLINE FILE W4.3
e-jing. “E-Procurement.” e-jing.net/en/solutions/e-procure
ment.htm (no longer available online).
Johnson, P. F., and R. D. Klassen. “E-Procurement.” MIT
Sloan Management Review (Winter 2005).
Minihan, T. “The Truth About E-Sourcing.” Supply
Excellence, March 31, 2009. supplyexcellence.com/
blog/2009/03/31/truth-about-e-sourcing (accessed
December 2010).
Moai. “Solutions Overview.” moai.com/solutions/solutions_
overview.asp (accessed December 2010).
Podlogar, M. “Simplifying the Procurement Process by
Using E-Commerce.” International Journal of Internet
and Enterprise Management, 4, no. 2 (2006).
Zhao, F. Maximize Business Profits Through E-Partnership.
Hershey, PA: Idea Group Inc., 2006.
Chapter Four: B2B E-Commerce
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ONLINE FILE W4.4
EC Application
CHEMCONNECT: THE WORLD COMMODITY CHEMICAL
EXCHANGE
Today, buyers and sellers of chemicals and plastics can meet
electronically in a large Internet public marketplace (founded
in 1995) called ChemConnect (chemconnect.com), which is a
subsidiary of Intercontinental Exchange (ICE). The
international community of members includes more than
9,000 companies from over 150 countries worldwide. Global
chemical industry leaders, such as BP, Dow Chemical, BASF,
Hyundai, Sumitomo, and many more, make transactions over
ChemConnect every day in real time. They save on
transaction costs, reduce cycle time, and find new markets
and trading partners around the globe. It was the first B2B
e-market in the chemical industry.
ChemConnect provides a link to the Global Exchange
Services (GXS, gxs.com) trading marketplace, which manages
a network of about 150,000 trading partners worldwide
including 70 percent of Fortune 500 companies. Members are
producers, consumers, distributors, traders, and intermediaries involved in the chemical industry. ChemConnect offers
its members a Trading Center with three trading places:
1. Marketplace for buyers. In this marketplace, buyers
can find suppliers all over the world. They can post
RFQs with reverse auctions, negotiate, and more.
2. Marketplace for sellers. This marketplace exposes
sellers to many potential new customers. It provides
automated tools for quick liquidation. More than 1,000
products are negotiated in auctions.
3. Commodity markets platform. This platform provides
a powerful connection to the global spot marketplaces
for chemicals, plastics, and related materials.
ChemConnect members can use the Trading Center to
streamline sales and sourcing processes by automating requests
for quotes, proposals, and new suppliers. The center enables a
member to negotiate more efficiently with existing business
partners as well as with new companies the member may invite
to the table—all in complete privacy. The Trading Center is a
highly effective way to get the best prices and terms available
on the worldwide market. In addition, members can access a
database containing more than 63,000 chemicals and
plastics—virtually any product members are ever likely to look
for. In addition to trading, the exchange provides back-end
fulfillment services (e.g., payments, delivery).
All three trading places provide up-to-the-minute
market information (mostly financial and news, via
bloomberg.com) that can be translated into more than
30 different languages. Business partners provide several
support services. For example, Citigroup and ChemConnect
jointly offer several financial services for exchange members.
ChemConnect also offers systems for connecting companies’
back-end systems with their business partners and with
ChemConnect itself.
The overall benefits of ChemConnect to its members are
more efficient business processes, lower overall transaction
costs, and time saved during negotiation and bidding. For
example, conducting a reverse auction in a trading room
enables buyers to save up to 15 percent of a product’s cost in
just 30 minutes. The same process using manual bidding
methods would take several weeks or months.
ChemConnect continues to grow, adding members and
increasing its trading volume each year. One of the
company’s success factors is that 40 large chemical
companies hold about one-third of the company’s stock.
Another factor is the fact that about 44 percent of the
industry uses the exchange on a regular basis.
ChemConnect has expanded its coverage to become a
more diversified company, offering midstream energy, such as
ethanol, natural gas, and other commodities. It has also
added negotiation solutions, collaboration hubs, data
integration services, price discovery features, and more. Also,
its community has been expanded. Participant companies
include most large producers, consumers, distributors,
traders, and transportation and logistics companies within
each product class in addition to banks, hedge funds, and
other interested financial institutions. Finally, it offers an
infrastructure for negotiation (see
chemconnect.com/negotiation.html).
In 2010, ChemConnect provides consulting services and
management to companies in the supply chain of the
chemical energy and related industries.
Questions
1. List the benefits of ChemConnect to trading
companies.
2. Describe the different trading platforms.
3. List some of the capabilities of the system.
REFERENCES FOR ONLINE FILE W4.4
Angwin, J. “Top Online Chemical Exchange Is an Unlikely
Success Story.” Wall Street Journal Online, January 8,
2004. chemconnect.com/pdfs/WSJ_SuccessStory.pdf
(accessed July 2011).
chemconnect.com (accessed December 2010).
Rappa, M. “Case Study: ChemConnect—Managing the
Digital Enterprise.” 2006. digitalenterprise.org/cases/
chemconnect_text.html (accessed May 2009).