“B2B Exchange, e-hub, EDI”

Academic Year 2015

B2B exchange• Marketplace/hub – a website where many

companies can buy from and sell to each other using common technology platform.

• Support community activities – industry news, online discussions, research on customer demand, forecast

B2B exchange type• Marketplaces based around specific industry

sectors (Vertical marketplace)• Marketplace formed around a wider supply

market that cuts across several industries (Horizontal Marketplace)

• Marketplace focusing on functions gain value from concentrating functional capabilities and quality services.

Supply chain• System of organizations, people, activities,

information and resources involved in moving product or service from supplier to customer

• Activities involve transforming natural resources, raw materials and components into finished product that is delivered to end customer

B2B e-hub• Set of technologies that operate in vertical and

horizontal industries• Facilitate the procurement process for

participants and make the supply chain management more efficient

Categorization of B2B e-hubs• Based on understanding of what business buy

and how they buy• What business buy (Purchases) ->

Manufacturing inputs & Operating inputs• How business buy -> Systematic sourcing and

Spot Sourcing

Categorization of B2B hubs (contd)• Manufacturing inputs: Raw materials and

components that go directly into products and process

• Operating inputs: Office supplies, spare parts , airline tickets (often called MRO-Maintenance, Repair and operating goods)

• Systematic sourcing: Involves negotiated contracts – long term relationship between buyer and seller

• Spot sourcing: Involves short term immediate needs at lowest possible cost

Categories of B2B e-hubs• MRO hubs• Yield Manager• Exchanges• Catalog Units

MRO• Horizontal markets that enable systematic sourcing

of operating inputs• In MRO hubs – operating inputs tend to be low-

value goods and relatively high transaction costs• MRO hubs provide value largely by increasing

efficiencies in the procurement process• E.g. Ariba.com – “Spend Management solutions” –

94/100 Fortune company use Ariba’s SaaS to manage their spend and commerce activities

Yield Manager• Horizontal markets that enable spot sourcing of

operating inputs• Yield Managers create spot markets for common

operating resources like manufacturing capacity, labor and advertising

• Yield Manager adds the most value in situations with a high degree of price and demand volatility such as electricity and utility market or huge fixed cost assets that cannot be liquidated or acquired quickly such as manpower

• E.g. Capacity Web Solutions – Web Development and Ecommerce solution provider (Big Commerce)

Exchanges• Vertical markets that enable spot sourcing of

manufacturing inputs• The exchange maintains relationship with buyer and

sellers making it easy for them to conduct business without negotiating contracts or otherwise hashing out the terms of relationship.

• Buyer and seller may not even know each other’s identity

• E.g. Paper Exchange – Shredding and records storage• IMX Exchange – Mortgage brokers and lenders to

communicate and conduct business

Catalog Units• Vertical markets that enable systematic sourcing

of manufacturing inputs• Like MRO hubs, catalog hubs bring together

many suppliers at one easy to use website• Only difference is catalog hubs are industry

specific• Can be buyer focused or seller focused• E.g. Chemdex

B2B Matrix

Characteristics of e-Hub• Provides complete transparency at all stages of

execution of a transaction. Transaction between buyers and suppliers across the supply chain is automated.

• The eHub facilitates flow of information to all concerned partners, thus enabling them to response in timely and efficient manner.

• All parties contribute their share of information to create a pool of dynamic information in the eHub. Since all trading partners can tap this information it serves multiple functions

Electronic Data Interchange• EDI is the computer-to computer exchange of

business documents in a standard electronic format between business partners.

EDI: Computer to Computer• EDI replaces postal mail, fax and email• Email – still handled by people and slows down

processing of documents and

EDI: Business documents• Any document that are exchanged between

businesses.– Purchase orders– Invoices– Advance ship notices– Customs documents– Inventory documents ….

EDI: Standard format• EDI documents must be processed by

computers rather than humans and a standard format must be used

• A standard format describes what each piece of information is and in what format

• Standards in use today: ANSI, EDIFACT

EDI: Business Partners• The exchange of EDI documents is between two

different companies referred to as business partners or trading partners.

What comprises an EDI document?• An EDI document comprises of data elements,

segments and envelopes that are formatted according to the rules of a particular EDI standard

How does EDI Work?• Step 1: Prepare the Document - Collect and organize

data E.g. instead of printing a purchase order, your system creates an electronic file with necessary information to build an EDI document.

• Step 2: Translate the documents into EDI format – feed the electronic data through EDI translation software to convert internal data format into the EDI standard format using appropriate segments and data elements

• Step 3: Transmit EDI document – Decide how to connect to each partner (Connect using secure internet protocol, using EDI network provide)

How does EDI work?

Traditional paper based vs EDIIn the paper-based method, the following process typically occurs:• The inventory system automatically notifies the buyer to place an

order, or, after querying the inventory system, the buyer determines that an order needs to be created

• The buyer enters data onto the screen of a purchasing system to create the PO, prints and mails it

• After several days, the vendor receives the PO and manually enters it into the sales order system

• The vendor prints an invoice and encloses it with the shipment and/or sends it separately by mail

• The buyer manually enters the invoice into the Accounts Payable system

Traditional paper based vs EDI• The buyer’s procurement system, which utilizes EDI software,

automatically generates and sends an EDI-formatted PO when inventory reaches the critical level

• Within minutes the vendor’s sales order system, utilizing EDI software, receives the EDI PO, notifies the shipping department to ship the goods and generates an EDI invoice to be transmitted directly to the buyer’s accounts payable system

Relationship of B2B ecommerce with other perspectives• Electronic Marketing: B2b platform can be used to sell

company’s product and services to business customer on the Internet.

• Procurement Management: B2B is a medium of facilitating procurement management such as reduced prices and reduced cycle time

• Electronic intermediaries: Individual consumers and business purchases a group of items but some items such as industrial equipment are only sold to businesses. And since the purchasing party is a business who has to deal with many suppliers and intermediaries, an integrated directory linked with suppliers and intermediaries is needed.

Impact of B2B on Business Processes• Procurement Processes: The way procurement( direct and indirect cost purchase)

was being executed earlier between business entities has now been revolutionized after the introduction of B2B and technologies such as EDI

• Fulfillment: Even though globalization and Internet would have given a smallest business a global presence in the global marketplace; however most of the businesses find that their customers remain predominantly "local" and that ability to deliver goods is a prime consideration. The companies involved on B2B deliveries have an advantages over those involved on B2C trading. Shipments are typically much larger and consequently, B2B shipments are usually two-to-three times less expensive than B2C deliveries.

• Managing Trading Partner Relationships: B2B facilitates trading partner collaboration to the greater extent. Services can be customized to meet individual trading partner need. This includes provision of effective communications about the status of orders and deliveries; together with speedy resolution of queries and post sales support issues. Such services have proved to be invaluable to companies, enabling them to provide a level of support which their larger competitors are not able to replicate.