BUYING FROM VIRTUAL SELLER BIGBOXX.COM - UTH e

Transcription

Chapter Five: B2B E-Commerce: Selling and Buying in Private E-Markets
ONLINE FILE W5.1
BUYING FROM VIRTUAL SELLER BIGBOXX.COM
Bigboxx.com (bigboxx.com), based in Hong Kong, is a B2B
retailer of office supplies. It has no physical stores and sells
products through its online catalog; thus, Bigboxx.com is
an online intermediary. The company has three types of
customers: large corporate clients, medium-sized corporate
clients, and small office/home offices (SOHOs). It offers more
than 8,000 items from 300 suppliers. Bigboxx.com’s goal is
to sell its products in various countries in Southeast Asia.
The company’s portal is attractive and easy to use and
includes tutorials that instruct users on how to use the Web
site. Once registered, the user can start shopping using the
online shopping cart. Users can look for items by browsing
through the online catalog or by searching the site with a
search engine. The ordering system is integrated with an
SAP-based back-office system.
Users can pay by cash or by check (upon delivery), via
automatic bank drafts, by credit card, or by purchasing card.
Soon users will be able to pay through Internet-based direct
debit, by electronic bill presentation and payment, or by
Internet banking.
Using its own trucks and warehouses, deliveries scheduled online are made within 24 hours.
REFERENCES FOR ONLINE FILE W5.1
bigboxx.com (accessed November 2006).
Chan, W. C., T. C. Chu, A. R. Gold, and G. Leibowitz.
“Thinking Out of the Box.” The McKinsey Quarterly
no. 2 (2001).
Bigboxx.com provides numerous value-added services for
customers. Among these are the ability to check item availability in real time; the ability to track the status of each
item in an order; promotions and suggested items based on
customers’ user profiles; customized prices for every product,
for every customer; control and central-approval features;
automatic activation at desired time intervals of standing
orders for repeat purchasing; and a large number of Excel
reports and data, including comparative management reports.
Bigboxx.com began operations in spring 2000. By the
end of 2006, it had over 8,500 registered customers.
Questions
1. Enter bigboxx.com and staples.com and compare their
B2B offerings and purchase processes. (Take the tutorial
at bigboxx.com.) What support services are provided?
2. Someday customers may become accustomed to buying
office supplies online. Then, they may try to buy
directly from the manufacturers. Will Bigboxx.com or
staples.com then be disintermediated? Why or why not?
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Part 3: Business-to-Business E-Commerce
ONLINE FILE W5.2
BOEING’S PARTS 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 (Part
Analysis and Requirement Tracking), 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.)
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As a result of PART’s success, Boeing started a complementary EC initiative called
Boeing OnLine 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 wireline or wireless
devices. In May 2000, Boeing also launched a new e-business site for airline customers
based on PART and BOLD.
“Boeing Launches New E-Business Web Site.” Aerotech News
and Review—Journal of Aerospace and Defense Industry
News, May 12, 2000.
Boeing. “Portal Power: E-Business at Boeing Gaining
Velocity.” August 29, 2002. boeing.com/commercial/
news/feature/ebiz.html (accessed November 2006).
ONLINE FILE W5.3
MARSHALL INDUSTRIES
Marshall Industries, now part of Avnet Electronics Marketing (avnet.com), is a large distributor of electronics components. It buys electronics components from manufacturers and sells
them to businesses. Prior to its merger with Avnet in 1999, Marshall served over 30,000
business customers, many of which were small in size. Marshall distributed over 130,000 different products worldwide. Avnet was a competitor. Now, together, they have sales of over
$10 billion a year.
The electronics industry is very competitive. Distributors compete against each other
and against direct marketing by the manufacturers, and they may face disintermediation.
Thus, providing value-added services is key to a distributor’s survival. Marshall added value
to its customers through IT support. The company was known for its innovative use of information technologies and the Web (e.g., see Wilson 1998): It won a first prize in the 1997
SIM International awards competition (simnet.org) for the best paper describing how the
company uses IT and EC (El-Sawy et al. 1999). In 1999, Marshall was the first ever to use
the XML-based interoperable solution for B2B integration. (XML stands for eXtensible
Markup Language, a standard for defining data elements on a Web page and B2B documents.) Marshall pioneered the use of the Internet and IT applications with a view to reengineer its business and create new competitive strengths. Its major Web-based initiatives,
which were interconnected, are listed below. Most of these initiatives still remain in the systems offered by Avnet.
In addition to the physical distribution of components, distributors such as Marshall
(and now Avnet) have increasingly taken on value-added tasks such as technical support,
logistics, payment processing and accounts receivable, credit services, logistics, and more. The
semiconductor industry, for example, is cyclical, causing major delivery and inventory problems that distributors seek to solve. In addition, large customers are global and require global
sourcing. Time-to-market competition and customization at the customer end require a fast
and flexible response from distributors. Just-in-time and supplier-managed inventories are
increasingly required from distributors. These demands require tight integration of information and provision of value-added services along the value chain. Marshall (and now Avnet)
met these demands in its e-commerce initiative by providing value-added services that
enabled the company to survive as an intermediary.
MARSHALL’S SURVIVAL STRATEGY
Marshall’s use of e-commerce was combined with other innovations and with business process
reengineering (BPR), the introduction of a fundamental change in the way a company does
business. For example, Marshall made various business process changes: The company
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Marshall Industries’ EC Initiatives
Initiative
Description
MarshallNet
An intranet that supports salespeople in the field via wireless devices and portable PCs.
Offers real-time access to the corporate database, DSS applications, and workflow and
collaboration software.
A B2B portal for customers that offers information, ordering, and tracking (using UPS
software) capabilities. Established discussion group, chat room, connection to call
centers. Offers special pages for value-added resellers and troubleshooting capabilities.
A strategic partner in Europe that offers MarshallNet in 17 languages, as well as
additional local information.
Includes an online configuration tool. Provides technical specifications. Offers simulation
capabilities for making virtual components. The company can produce sample products
designed by customers.
Customized Web pages for major customers and suppliers. Offers access to the company’s
intranet. Enables electronic payments and access to historical data and records.
Also offers planning tools online.
An online training tool; brings suppliers and customers together for live interactions.
Offers education, news, and entertainment services, including consulting, sales
training, and interactive public product announcements.
Marshall on the Internet (portal)
Strategic European Internet
Electronic Design Center
PartnerNet
NetSeminar
Education and News Portal
moved to a team-based organization with a flat hierarchy, decentralizing decision making;
provided continuous improvement innovations jointly with its business partners; changed
the salesperson’s compensation from commission-based to profit sharing; promoted
the use of CRM; provided new Web-based services to create value between suppliers and
customers; and changed the internal organizational structure and procedures to fully support
e-commerce initiatives.
Marshall was both very successful and profitable. Its EC initiatives are now practiced
at Avnet Electronics Marketing as well. For additional information, see Timmers (1999),
El-Sawy et al. (1999), and avnet.com (2003).
Avnet. “Avnet Enterprise Solutions Storage Initiative
Delivers Coast-to-Coast Expertise.” March 24, 2003.
highbeam.com/doc/1G1-99109171.html (accessed
November 2006).
El-Sawy, O., et al. “Intensive Value Innovation in the Electronic Economy: Insight from Marshall Industries.” MIS
Quarterly (September 1999).
Timmers, P. Electronic Commerce: Strategies and Models for
B2B Trading. Chichester, UK: John Wiley & Sons, 1999.
Wilson, T. “Marshall Industries: Wholesale Shift to the
Web.” Internet Week, July 20, 1998.
ONLINE FILE W5.4
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.
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
• 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
•
•
•
•
•
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
•
•
•
•
•
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
Source: Compiled from “e-jing E-Procurement,” e-jing.net/en/solutions/e-procurement.htm (accessed November 2006). Used with permission.
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ONLINE FILE W5.5
E-PROCUREMENT AT SCHLUMBERGER
Schlumberger is the world’s largest oil service company, with
over 50,000 employees in 100 countries and annual sales of
over $10 billion (schlumberger.com). In 2000, the company
installed a Web-based automated procurement system in
Oilfield Services, its largest division. With this system,
employees can buy office supplies and equipment, as well
as computers, straight from their desktops.
The system replaced a number of older systems,
including automated and paper-based ones. The single system
streamlines and speeds up the purchasing operation, reducing
costs as well as the number of people involved in the process.
It also enables the company to consolidate purchases for
volume discounts from vendors.
The new procurement system gives buyers centralized
control over the entire procurement process and offers a
complete purchase-to-pay solution for MRO items to
strategic-indirect items. This solution improves efficiency
and decreases labor costs by eliminating manual, paperbased processes and providing enterprisewide self-service
procurement by:
◗ Eliminating paper-based business documents
◗ Reducing maverick spending and generating savings by
enforcing contract-based purchasing
◗ Radically reducing PO processing time from days or weeks
to minutes
◗ Eliminating the need for additional headcount to support
internal e-procurement
◗ Eliminating the need for the buyer’s resources to load and
manage catalogs and price files
◗ Integrating ERP or existing accounting systems
◗ Integrating ERP for master data such has users, cost centers, shipping and billing addresses, and organizational
structures
◗ Providing advanced functionality for streamlined processing
◗ Providing standardized purchasing reports by cost center,
supplier, organization, commodity, and others
Prices are negotiated with individual vendors before
their items are put into Schlumberger’s system. For example,
Office Depot’s entire catalog is posted on the MarketSite
(now part of Product Manager from Perfect.com), but
Schlumberger employees only see negotiated products and
prices. In 2005, the company planned to negotiate prices in
real time through auctions and other bidding systems.
The benefits of the procurement system are clear. The cost
of goods has been reduced; transaction costs also have fallen.
Employees spend much less time in the ordering process, thus
giving them more time for their core work. The system also is
more cost-efficient for the suppliers, who can then pass along
savings to Schlumberger. By using one system worldwide,
employees who are transferred do not have to learn a new
system at their new location. Procurement effectiveness
has been increased because it is now possible to track all
procurement activities.
Getting the system up and running was easy because it
was implemented in stages and ran at the same time as
existing systems. Employees did not have to deal with
implementation issues—once the system was in place, the
old system was disabled, and there were no complaints with
regard to the old system being shut down because it was no
longer in use.
By 2006, the system was used by over 6,000 users
in 83 countries for the procurement of over $2 billion
in goods and services each year. The system delivers
significant cost savings, improved productivity, and
error reduction. The RFQ process and special request
purchases are now automated, connecting business
processes between systems and partners.
Questions
1. Describe the benefits of the new system over the
old system.
2. Describe how the e-procurement system operates.
3. Summarize the benefits of e-procurement to the
company and its employees.
Commerce One. “Schlumberger: Customer Profile.”
commerceone.com/customers/profiles/schlumberger.
pdf (no longer available online).
Ovans, A. “E-Procurement at Schlumberger.” Harvard
Business Review (May–June 2000).
Perfect.com. “Perfect Manager.” 2006. perfect.com/
solutions/perfectprocure.html (accessed September
2006).
Schlumberger. “Schlumberger Corporate Profile.” slb.com/
content/about/who.asp? (accessed September 2006).
ONLINE FILE W5.6
THE PROCUREMENT REVOLUTION AT GENERAL ELECTRIC
General Electric’s material costs increased 16 percent between 1982 and 1992 (gxs.com 1999).
During those same years, GE’s product prices remained flat or for some products even
declined. In response to the cost increases, GE began an all-out effort to improve its purchasing system. The company analyzed its procurement process and discovered that its purchasing
was inefficient, involved too many transactions, and did not leverage GE’s large volumes to get
the best prices. In addition, more than one-quarter of its 1.25 million invoices per year had to
be reworked because the purchase orders, receipts, and invoices did not match.
TPN AT GE’S LIGHTING DIVISION
Of a number of steps GE took to improve its procurement, one of the most innovative was
the introduction of an electronic tendering system that started in GE’s Lighting Division.
Factories at GE Lighting used to send hundreds of RFQs to the corporate sourcing
department each day, many for low-value machine parts. For each requisition, the accompanying blueprints had to be requested from storage, retrieved from the vault, transported to
the processing site, photocopied, folded, attached to paper requisition forms with quote
sheets, stuffed into envelopes, and mailed out to bidders. This process took at least 7 days and
was so complex and time-consuming that the sourcing department normally sent out bid
packages for each part to only two or three suppliers.
In 1996, GE Lighting piloted the company’s first e-procurement system, called the
Trading Process Network (TPN) Post. With this online system, the sourcing department
received the requisitions electronically from its internal customers and sent off a bid package to suppliers around the world via the Internet. The system automatically pulled the
correct drawings and attached them to the electronic requisition forms. Within 2 hours
from the time the corporate sourcing department started the process, suppliers were
notified of incoming RFQs by e-mail, fax, or EDI. They were given 7 days to prepare a bid
and return it electronically to GE Lighting. Then the bid was transferred internally, over
the corporate intranet, to the appropriate evaluators, and a contract could be awarded that
same day.
Benefits of TPN. As a result of implementing TPN, GE realized a number of benefits:
◗ Administrative labor involved in the procurement process declined by 30 percent. At the
same time, material costs declined 5 to 50 percent due to the procurement department’s
ability to reach a wider base of competing suppliers online.
◗ GE was able to cut by 50 percent the number of staff involved in the procurement
process and redeploy the unnecessary workers into other jobs. As a result, the sourcing
department had at least 6 to 8 free days a month to concentrate on strategic activities
rather than on paperwork, photocopying, and envelope stuffing.
◗ It used to take 18 to 23 days to identify suppliers, prepare a request for bid, negotiate a price,
and award the contract to a supplier. After implementation of the TPN, it took 9 to 11 days.
◗ With the transaction handled electronically from beginning to end, invoices could be
automatically reconciled with purchase orders, reflecting any modifications that happened
along the way.
◗ GE procurement departments around the world were able to share information about their
best suppliers. In February 1997 alone, GE Lighting found seven new suppliers through
the Internet, including one supplier that charged 20 percent less than the second-lowest
bidding supplier.
By 2001, 12 of GE’s divisions were purchasing their nonproduction and MRO materials
over the Internet for an annual total of $6 billion (35 percent of their total procurement).
General Electric estimates that streamlining these purchases alone has saved the company
$500 to $700 million annually.
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THE INCEPTION OF GXS
Due to the success of TPN, GE expanded the system, making it a public posting place for
other buyers. In 2001, TPN was acquired by GXS Express Marketplaces, which was operated
by GE Global Exchange Services (gxs.com). GXS now operates as a public marketplace on
which many other companies place RFQs. GXS has over 100,000 trading partners in
58 countries, and in 2004 it processed over 1.2 billion transactions valued at over $1 trillion.
It is one of the most profitable dot-com companies. In June 2002, it was sold to Francisco
Partners under whose control it continues to operate under the name GXS (gxs.com). GXS
also assumed the EDI services of GE Information Services.
Benefits of GXS. Suppliers in the GXS system can gain instant access to global buyers
(including GE) with billions of dollars in purchasing power. In addition, they may dramatically improve the productivity of their own bidding and sales activities. Other benefits are
increased sales volume, expanded market reach and ability to find new buyers, lower
administration costs for sales and marketing activities, shorter requisition cycle time,
improved sales staff productivity, and a streamlined bidding process.
General Electric reports that the benefits of GXS extend beyond its own walls. As an
example, computer reseller Hartford Computer Group reports that since joining GXS it has
increased its exposure to different GE business units so that its business with GE has grown
by over 250 percent. In addition, GXS has introduced Hartford Computer Group to other
potential customers.
More generally, the benefits of GXS to purchasing departments include the following:
streamlining sourcing processes with current business partners; finding and building partnerships with new suppliers worldwide; rapidly distributing information, specifications, and
electronic drawings to multiple suppliers simultaneously; and cutting sourcing cycle times
and reducing costs for sourced goods.
DEPLOYMENT STRATEGIES AND CHALLENGES
The GE case demonstrates two deployment strategies for EC initiatives. The first is to start
EC in one division (GE started in its Lighting Division) and slowly go to all divisions. The
second is to also use the site as a public bidding marketplace to generate commission income.
Even though GE was successful with its e-procurement system, it could not reach its original plan of 100 percent e-procurement due to connectivity difficulties with SMEs. By 2001, of
its 30,000 suppliers, roughly 25 percent (7,500 suppliers) were performing the critical procurement missions on the Web. Another 7,500 or so were connected to GE using the EDI networks. That left another 15,000 suppliers that relied mainly on manual processes to conduct
business with GE (Moozakis 2001). (Connecting with SMEs is a common challenge in B2B
implementation.)
gxs.com (accessed November 2006).
Moozakis, C. “GE Scales Back.” Internet Week, May 10,
2001. internetweek.cmp.com/newslead01/lead051001
.htm (accessed November 2006).
Trading Process Network. “Extending the Enterprise:
TPN Post Case Study—GE Lighting.” Trading Process
Network, 1999. tpn.geis.com/tpn/resource_center/
casestud.html (accessed January 2000).
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ONLINE FILE W5.7
UNITED TECHNOLOGIES USES A THIRD-PARTY
AUCTIONEER: FREEMARKETS
Imagine the following scenario: United Technologies Corp.
needs suppliers to make $24-million worth of circuit boards.
Twenty-five hundred suppliers, whose names were found in
electronic registries and directories, were identified as
possible contractors. The list of possible suppliers was submitted to FreeMarkets (ariba.com), a third-party auctioneer.
Experts at FreeMarkets reduced the list to 1,000 based on
considerations ranging from plant location to the size of the
supplier. After further analysis of plant capacity and customer feedback, the list was further reduced to 100. A
detailed evaluation of the potential candidates resulted in
50 qualified suppliers, who were then invited to bid. Those
50 suppliers received a password to review the circuit board
specifications online.
A 3-hour auction of online competitive bidding was
conducted. FreeMarkets divided the job into 12 lots, each of
which was put up for bid. At 8:00 a.m. the first lot, valued
at $2.25 million, was placed online. The first bid was
$2.25 million, which was seen by all bidders. Minutes later,
another bidder placed a $2.0 million bid. Using the reverse auction approach, the bidders further reduced their bids. Minutes
before the bid closed, at 8:45 A.M., the 42nd bid, which was
for $1.1 million, was received. No other bids were received.
When the bidding ended, the bids for all 12 lots totaled $18
million (about a 35 percent savings to United Technologies).
To finalize the process, FreeMarkets conducted a comprehensive analysis of several of the lowest bidders of each
lot, attempting to look at other criteria in addition to price.
Based on the bid amount as well as other factors,
FreeMarkets then recommended the winners and collected
its commission fees. (For more on e-procurement at United
Technologies, see Britton 2000.) Freemarkets is now a
division of Ariba.com.
Questions
1. What type of auction is this?
2. What role does FreeMarkets play in the procurement
process?
3. Why would a large company such as United
Technologies need an intermediary?
Britton, K. “E-Procurement at United Technologies.”
Business 2.com, November 14, 2000.
FreeMarkets. freemarkets.com, 1999 (accessed October
2002). Now ariba.com (old files are no longer available).
Jahnke, A. “How Bazaar.” CIO Magazine, August 1, 1998.
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Online File W5.8 E-Negotiation Systems
E-negotiation systems (ENSs) started in the mid-1990s with efforts such as Kashah and Tate-@-Tate from MIT.
Each year, 40 universities in 21 countries competed in an international e-negotiation tournament (e.g., see interneg.org)
and enegotiation.org). The following are some negotiating agents.
WebNS
WebNS is a Web-based negotiation process support tool that has been tested in several experiments: Complex labor union and
management negotiation in comparison with face-to-face meetings; online mediation using a case of resolving conflict between
a consumer and a company; and multimedia negotiation using a case of remote house purchase negotiation. To make it more
reliable and suitable to run anywhere in an e-negotiation tournament, WebNS has been reprogrammed by using JSP on an IBM
WebSphere server. The system still needs further improvements.
Negoisst
Negoisst is a negotiation support system that combines communication management with document management. It enables
complex dynamic negotiations between human negotiators, guides them through the complex negotiation process, and provides
support rather than an automation of negotiations. Users are allowed to specify preferences on both a discrete and a continuous scale, and each (counter-) offer is then evaluated based on the specific preferences. New negotiation items can also be
added to lead to a reassessment of preferences.
SimpleNS
SimpleNS (invite.concordia.ca/inspire/about.html) has been developed for teaching and conducting comparative studies on the
use and effectiveness of different ENSs. A virtual negotiation table allows users to exchange offers and messages. The system
displays the negotiation case and other information required to conduct the negotiation, presents a form for users to write
messages and offers, and shows the negotiation history in which all messages and offers are displayed in one table that
includes a time-stamp.
e-Agora
e-Agora is an experimental marketplace that allows buyers and sellers to engage in multi-issue negotiations. Protocols are based
on a negotiation phase model and implemented in the system. The purpose is to use e-Agora in the study of behavioral,
commercial, and social aspects of e-marketplaces and e-negotiations. e-Agora services include a software agent, a proactive assistant to the users, which has three main objectives: (1) identifying alternative offers that the user may find attractive; (2) critiquing an offer that the user is considering for submission; and (3) critiquing an offer that the user receives from an opponent.
The initial assessment of e-Agora was based on a small-scale usability testing with two groups of participants. One group
conducted negotiations with the support of the agent, the other without. The preliminary results show that 92 percent of the
participants are in favor of employing e-Agora to buy and sell products over the Web, and 83 percent stated the agent provided
helpful advice and suggestions in their negotiations. Successful negotiations increased by 17 percent overall, and the participants requested additional services from the agent, including the suggestion of possible negotiation strategies, enhanced offer
critiques, and partial negotiation automation.
Invite
Invite (InterNeg virtual integrated transaction environment) is a software platform capable of facilitating, supporting, and aiding e-negotiations. Its present purpose is to provide a highly customizable and flexible environment for bilateral negotiation. It
may be used either when the Invite manager specifies the negotiation problem and process prior to the negotiation or when
the negotiation problem and process are defined during the negotiation.
Other Agents
Several other negotiation agents also are available, including Inspire, MeetingOne, Smartsettle (smartsettle.com), and
FamilyWinner. For details, see enegotiation.org.
ONLINE FILE W5.9
FROM TRADITIONAL TO INTERNET-BASED EDI
The vast majority of B2B transactions are supported by EDI, XML, and extranets. Here
we describe EDI and its transition to the Internet platform. Extranets are covered in
Appendix 6A.
TRADITIONAL EDI
EDI is a communication standard that enables the electronic transfer of routine documents,
such as purchasing orders, between business partners. It formats these documents according
to an agreed-upon structure. An EDI implementation is a process in which two or more
organizations determine how to work together more effectively through the use of EDI. For
other organizations, it is an internal decision spurred by the desire for competitive advantage.
EDI is basically a computer-to-computer messaging system with a minimum of human
intervention. For a comparison of EDI versus no EDI, see Exhibit W5.9.1.
EDI often serves as a catalyst and a stimulus to improve the business processes that flow
between organizations. It reduces costs, delays, and errors inherent in a manual documentdelivery system:
◗ Business transaction messages. EDI primarily is used to electronically transfer repetitive business transactions. These include purchase orders, invoices, credit approvals,
shipping notices, confirmations, and so on.
◗ Data-formatting standards. Because EDI messages are repetitive, it makes sense to use
formatting (coding) standards. Standards can shorten the length of the messages and
eliminate data entry errors because data entry occurs only once. EDI deals with standard
transactions, whereas e-mail is more open. EDI uses a special standard language and is
secure, whereas e-mail is not. When a user enters data into the EDI system, the data are
automatically converted to EDI language. If there are missing or incorrect data, the EDI
converter offers assistance. EDI fosters collaborative relationships and strategic partnerships. In the United States and Canada, data are formatted according to the ANSI X.12
standard or the UCS code. An international standard developed by the United Nations
is called EDIFACT (see bambooweb.com).
◗ EDI translators. An EDI translator automatically translates data. The software organizes information into a standard format.
EDI has been around for about 30 years in the non-Internet environment. To distinguish
it from Internet-based EDI, we call EDI on the non-Internet platform traditional EDI.
HOW DOES EDI WORK?
The following example illustrates how EDI works in a hospital. Information flows from the
hospital’s information systems into an EDI station that includes a PC and an EDI translator.
From there, the information moves, using a modem if necessary, to a value-added network
(VAN). The VAN transfers the formatted information to a vendor(s), where an EDI translator converts it to a desired format.
How EDI Cuts Costs of Ordering Supplies
An average hospital generates about 15,000 purchase orders each year, at a processing cost
of about $70 per order. The Health Industry Business Communication Council estimates
that EDI can reduce this cost to $4 per order—generating yearly savings of $840,000 per
hospital. The required investment ranges between $8,000 and $15,000, which includes
purchase of a PC with an EDI translator, a modem, and a link to the mainframe-based
information system. The hospital can have two or three ordering points. These are
connected to a value-added network (VAN), which connects the hospital to its suppliers
11
12
EXHIBIT W5.9.1 Purchase Order (PO) Fulfillment With
and Without EDI
P.O.
Delivery
Start
Sales
Order Placer
Accounting/Finance
Order Confirmation
Bill Delivery
Mail Room
Without EDI
Accounting/Finance
Purchasing
Mail Room
Payment
Delivery
Shipping
Shipping
Receiving
Product
Delivery
Order Fulfillment
Buyer
Seller
P.O.
Standardized
P.O. Form
P.O.
Start
Computer Convertor
Generates
Standardized
P.O. Form
Invoice
With EDI
Flash
Report
Instant
Data to
• Sales
• Inventory
• Manufacturing
• Engineering
Departmental
Buyer
EDI Converter
Shipping
Receiving
Product
Delivery
Buyer
Order Fulfillment
Seller
(see Exhibit W5.9.2). The system also can connect to other hospitals or to centralized joint
purchasing agencies.
APPLICATIONS OF TRADITIONAL EDI
Traditional EDI has changed the business landscape, triggering new definitions of entire
industries. It is used extensively by large corporations, sometimes in a global network, such as
the one operated by General Electric Information System (which has over 100,000 corporate
users). Well-known retailers such as Home Depot and Wal-Mart would operate very differently without EDI because it is an integral and essential element of their business strategies.
Thousands of global manufacturers, including Procter & Gamble, Levi Strauss, Toyota, and
EXHIBIT W5.9.2 How EDI Cuts the Cost of Ordering Supplies
Hospitals
PC/EDI Translator
Pharmaceutical
Supplier’s
System
Pharmacy:
PC/EDI
Translator
Dietary:
PC/EDI
Translator
Hospital
Information
System
PC/EDI
Modem
Material
Management:
PC/EDI
Translator
PC/EDI Translator
VAN
PC/EDI Translator
Dietary
Supplier’s
System
Mainframe
Materials
Supplier’s
System
PC to Mainframe Links
Mainframe
Mainframe
Telephone Lines
Unilever, have used EDI to redefine relationships with their customers through such
practices as quick-response retailing and just-in-time ( JIT) manufacturing. These highly
visible, high-impact applications of EDI by large companies have been extremely successful.
The benefits of EDI are listed next.
Benefits of EDI
◗ EDI enables companies to send and receive large amounts of routine transaction information quickly around the globe.
◗ Computer-to-computer data transfer reduces the number of errors.
◗ Information can flow among several trading partners consistently and freely.
◗ Companies can access partners’ databases to retrieve and store standard transactions.
◗ EDI fosters true (and strategic) partnership relationships because it involves a commitment to a long-term investment and the refinement of the system over time.
◗ EDI creates a complete paperless TPS (transaction processing system) environment,
saving money and increasing efficiency.
◗ Payment collection can be shortened by several weeks.
◗ Data may be entered offline, in batch mode, without tying up ports to the mainframe.
◗ When an EDI document is received, the data may be used immediately.
◗ Sales information is delivered to manufactures, shippers, and warehouses almost in real
time.
◗ EDI can save companies a considerable amount of money.
LIMITATIONS OF TRADITIONAL EDI
However, despite the tremendous impact of traditional EDI among industry leaders, the set
of adopters represented only a small fraction of potential EDI users. In the United States,
where several million businesses participate in commerce every day, fewer than 100,000 companies have adopted traditional EDI. Furthermore, most of these companies have had only a
small number of their business partners on EDI, mainly due to its high cost. Therefore, in
Other Hospitals’
PC/EDI
Translators
13
14
reality, few small or medium businesses have benefited from EDI. The major factors that
held back more universal implementation of traditional EDI include the following:
◗
◗
◗
◗
◗
◗
Significant initial investment is needed, and ongoing operating costs are high.
Business processes must be restructured to fit EDI requirements.
A long startup period is needed.
EDI requires use of expensive private VANs.
EDI has a high operating cost.
Multiple EDI standards exist, so one company may have to use several standards in order
to communicate with different business partners.
◗ The system is difficult to use.
◗ A converter is required to translate business transactions to EDI code.
◗ The system is inflexible; it is difficult to make quick changes, such as adding business
partners.
These factors suggest that traditional EDI—relying on formal transaction sets, translation
software, and VANs—is not suitable as a long-term solution for most corporations. Therefore,
a better infrastructure was needed; Internet-based EDI is such an infrastructure. For details, see
Harris and Chen (2006).
INTERNET-BASED EDI
Internet-based (or Web-based) EDI is becoming very popular. Let’s see why this is the case
and review the various types of Web-based EDI.
WHY INTERNET-BASED EDI?
When considered as a channel for EDI, the Internet appears to be the most feasible alternative for putting online B2B trading within reach of virtually any organization, large or small.
Firms should use Internet-based EDI for several reasons:
◗ The Internet is a publicly accessible network with few geographical constraints. Its
largest attribute, large-scale connectivity (without the need for any special company networking architecture), is a seedbed for growth of a vast range of business applications.
◗ The Internet’s global network connections offer the potential to reach the widest
possible number of trading partners of any viable alternative currently available.
◗ Using the Internet instead of a VAN can cut communication costs by over 50 percent.
◗ Using the Internet to exchange EDI transactions is consistent with the growing interest
in delivering an ever-increasing variety of products and services electronically, particularly via the Web.
◗ Internet-based EDI can complement or replace many current EDI applications.
◗ Internet tools such as browsers and search engines are very user-friendly, and most
employees today know how to use them.
◗ Internet-based EDI has several functionalities not provided by traditional EDI, such as
collaboration, workflow, and search engine capabilities (see Boucher-Ferguson 2002).
A comparison of the traditional EDI and Internet-based EDI is provided in
Exhibit W5.9.3.
TYPES OF INTERNET-BASED EDI
The Internet can support EDI in a variety of ways:
◗ Internet e-mail can be used to transport EDI messages in place of a VAN. To this end,
standards for encapsulating the messages within Secure Internet Mail Extension
(S/MIME) have been established.
◗ A company can create an extranet that enables its trading partners to enter information
into a Web form, the fields of which correspond to the fields in an EDI message or
document.
EXHIBIT W5.9.3 Benefits of EDI
• EDI enables companies to send and receive large amounts of routine transaction information
•
•
•
•
•
•
•
•
•
•
quickly around the globe.
Computer-to-computer data transfer reduces the number of errors.
Information can flow among several trading partners consistently and freely.
Companies can access partners’ databases to retrieve and store standard transactions.
EDI fosters true (and strategic) partnership relationships because it involves a commitment to a
long-term investment and the refinement of the system over time.
EDI creates a complete paperless TPS (transaction processing system) environment, saving
money and increasing efficiency.
Payment collection can be shortened by several weeks.
Data may be entered off-line, in batch mode, without tying up ports to the mainframe.
When an EDI document is received, the data may be used immediately.
Sales information is delivered to manufactures, shippers, and warehouses almost in real time.
EDI can save companies a considerable amount of money.
◗ Companies can use a Web-based EDI hosting service in much the same way that companies rely on third parties to host their EC sites. Netscape Enterprise is an example of
the type of Web-based EDI software that enables a company to provide its own EDI
services over the Internet. Harbinger Express is an example of a company that provides
third-party hosting services.
◗ Internet-based EDI is frequently XML based to ease integration among business
partners.
THE PROSPECTS OF INTERNET-BASED EDI
Companies that used traditional EDI in the past have had a positive response to Internetbased EDI. With traditional EDI, companies have to pay for network transport, translation,
and routing of EDI messages into their legacy processing systems. The Internet simply serves
as a cheaper alternative transport mechanism. For a discussion, see Witte et al. (2003). The
combination of the Web, XML, and Java makes EDI worthwhile even for small, infrequent
transactions. Whereas EDI is not interactive, the Web and Java were designed specifically for
interactivity as well as ease of use.
The following examples demonstrate the benefits of Internet-based EDI:
◗ Compucom Systems was averaging 5,000 transactions per month with traditional
EDI. In just a short time after the transition to Web-based EDI, the company was
able to average 35,000 transactions. The system helped the company to grow
rapidly.
◗ Tradelink of Hong Kong was successful in recruiting only several hundred of the
potential 70,000 companies to a traditional EDI that communicated with government agencies regarding export/import transactions. In 2001, Tradelink’s Internetbased system had thousands of companies registered, and hundreds were being added
monthly.
◗ Atkins Carlyle Corp., which buys from 6,000 suppliers and has 12,000 customers in
Australia, is a wholesaler of industrial, electrical, and automotive parts. The large suppliers were using three different EDI platforms. By moving to an Internet-based EDI, the
company is able to collaborate with many more business partners, reducing transaction
costs by about $2 per message.
◗ Procter & Gamble replaced a traditional EDI system that had 4,000 business partners
with an Internet-based system that has tens of thousands of suppliers.
Note that many companies no longer refer to their collaborative systems as EDI.
However, the properties of EDI are embedded into new e-commerce initiatives such as
collaborative commerce and electronic exchanges.
15
16
Boucher-Ferguson, R. “Writing the Playbook for B2B.”
Wilson Internet, January 29, 2002.
Harris, A. L., and C. Chen. “Traditional and Internet EDI
Adoption Barriers,” in Khosrow-Pour (2006).
Khosrow-Pour, M. (ed.). Encyclopedia of E-Commerce,
E-Government, and Mobile Commerce. Hershey, PA:
Idea Group Reference, 2006.
Witte, C. L., M. Grünhagen, and R. L. Clarke. “The
Integration of EDI and the Internet.” Information Systems
Management (Fall 2003).
ONLINE FILE W5.10
XML UNIFIES AIR CARGO TRACKING SYSTEM
TradeVan Information Services of Taiwan provides information
services about the cargo flights of different airlines. As such,
it can be classified as a B2B intermediary. Because different
airlines have different information systems, the query results
from each airline differ in format. XML can facilitate data
exchange between such heterogeneous databases. A special
application was developed by Li and Shue (2003) to unify
different document presentations for cargo status information in Taiwan. In addition, the information can be presented
on WAP-based cell phones.
Shippers and receivers can use the system to track the
status of deliveries. Prior to the installation of the system,
an air cargo shipment spent 80 percent of its transport time
waiting and only 8 percent in the air. The new system is
expected to reduce delays significantly, to the benefit of all
members of the supply chain.
The system offers a uniform cargo status inquiry, and
it answers queries with a standardized presentation, which
can be personalized to offer each airline the particular
information it wants. Such standardization enables customs
brokers to reduce cycle time by preparing declarations of
imports faster. Buyers and other supply chain partners can
schedule production lines with precision in advance
because they can more accurately anticipate the time it
will take imports to clear customs. Finally, the quality of
door-to-door delivery companies such as FedEx and UPS
can be improved due to quick communication between
shippers and delivery companies. A fast delivery of information in standardized format is helping to improve the
supply chain by reducing both delivery lead times and
inventory levels.
Questions
1. What problem does XML solve?
2. What are the benefits of this system to shippers and
receivers?
Li, S. T., and L. Y Shue. “A Study of Logistics Infomediary
in Air Cargo Tracking.” Industrial Management and
Data Systems 103, no. 1 (2003).
tradevan.com.tx (accessed January 2001).
Online File W5.11 XBRL: Extensible Business Reporting Language
XBRL (eXtensible Business Reporting Language) is an international standard for electronic transmission of business and
financial information. As of September 2005, companies can use it to file financial reports electronically to the SEC and FDIC.
With XBRL, all the company’s financial data are collected, consolidated, published, and consumed without the need to use Excel
spreadsheets. The use of XBRL enables government analysts to validate information submitted in hours instead of 2 to 3 weeks.
For details, see Malykhina (2006).
Figure W5.11.1 illustrates how XBRL works.
EXHIBIT W5.11.1 How XBRL Works
Information Generation
Sources:
ERP
Databases
Files
Financial Data
USAA GAAP Taxonomy
Standards
Validate
and Publish
Company Extension Taxonomy
Output
Distribution,
Consumption
Analysts
XBRL Documents
Regulators
Public
Investors
Financial Institutions
According to Malykhina (2006), the Federal Financial Institutions Examination Council found that XBRL helps banks:
◗
◗
◗
◗
◗
◗
Generate cleaner data, including written explanations and supporting notes
Produce more accurate data with fewer errors that require follow-up by regulators
Transmit data faster to regulators and meet deadlines
Increase the number of cases and amount of information that staffers can handle
Make information available faster to regulators and the public
Address issues and concerns in their filings rather than after the fact
17
18
REFERENCE FOR ONLINE FILE W5.11
Malykhina, E., “XBRL: More than a Must-Do.” Information
Week, May 29, 2006.

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