Chapter 5

B2B E-Commerce:
Selling and Buying
in Private E-Markets
Learning Objectives
1. Describe the B2B field.
2. Describe the major types of B2B models.
3. Discuss the characteristics of the sell-side
marketplace, including auctions.
4. Describe the sell-side intermediary models.
5. Describe the characteristics of the buy-side
marketplace and e-procurement.
6. Explain how reverse auctions work in B2B.

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Learning Objectives

7. Describe B2B aggregation and group purchasing

models.
8. Describe other procurement methods.
9. Explain how B2B administrative tasks can be
automated.
10. Describe infrastructure and standards
requirements for B2B.
11. Describe Web EDI, XML, and Web Services.

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Concepts, Characteristics,
and Models of B2B EC

• Basic B2B Concepts

business-to-business e-commerce (B2B
EC)
Transactions between businesses conducted
electronically over the Internet, extranets,
intranets, or private networks; also known as
eB2B (electronic B2B) or just B2B

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Concepts, Characteristics,
and Models of B2B EC

• Key business drivers for B2B:

– The availability of a secure broadband Internet
platform and private and public B2B e-marketplaces;
– The need for collaborations between suppliers and
buyers;
– The ability to save money, reduce delays, and
improve collaboration; and
– The emergence of effective technologies for intra- and
interorganizational integration.

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Exhibit 5.2 Types of B2E EC

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Concepts, Characteristics,
and Models of B2B EC

• Basic Types of B2B E-Marketplaces

– One-to-Many and Many-to-One: Private
E-Marketplaces
company-centric EC
E-commerce that focuses on a single company’s buying
needs (many-to-one, or buy-side) or selling needs (one-to-
many, or sell-side)
private e-marketplaces
Markets in which the individual sell-side or buy-side
company has complete control over participation in the
selling or buying transaction

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Concepts, Characteristics,
and Models of B2B EC

– Intermediaries are frequently used

• Conducting auctions
• Aggregating buyers
• Complex transactions
– Many-to-Many: Exchanges
exchanges (trading communities or trading exchanges)
Many-to-many e-marketplaces, usually owned and run by a
third party or a consortium, in which many buyers and many
sellers meet electronically to trade with each other; also
called trading communities or trading exchanges

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Concepts, Characteristics,
and Models of B2B EC

– Many-to-Many: Exchanges
public e-marketplaces
Third-party exchanges that are open to all interested
parties (sellers and buyers)
B2B2C
A business sells to a business, but delivers small
quantities to individuals or business customers
online intermediary
An online third party that brokers a transaction online
between a buyer and a seller; may be virtual or click-
and-mortar
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Concepts, Characteristics,
and Models of B2B EC

– Types of Transactions
spot buying
The purchase of goods and services as they are
needed, usually at prevailing market prices

strategic systematic sourcing

Purchases involving long-term contracts that usually
are based on private negotiations between sellers and
buyers

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Concepts, Characteristics,
and Models of B2B EC

– Types of Materials Traded

direct materials
Materials used in the production of a product (e.g.,
steel in a car or paper in a book)
indirect materials
Materials used to support production (e.g., office
supplies or light bulbs)
MRO (maintenance, repair, and operation)
Indirect materials used in activities that support
production
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Concepts, Characteristics,
and Models of B2B EC

– Direction of Trade

vertical marketplaces
Markets that deal with one industry or industry
segment (e.g., steel, chemicals)

horizontal marketplaces
Markets that concentrate on a service, materials, or a
product that is used in all types of industries (e.g.,
office supplies, PCs)

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Concepts, Characteristics,
and Models of B2B EC

• Supply Chain Relationships in B2B

– B2B private e-marketplace provides a company
with high supply chain power and high capabilities
for online interactions
– A public e-marketplace provides a business with
high buying and selling capabilities, but results in
low supply chain power
– Using an intermediary results in low supply chain
power and buying/selling capabilities

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Concepts, Characteristics,
and Models of B2B EC

• Virtual Services Industries in B2B

– Travel and entertainment services
– Real estate
– Financial services
– Online stock trading
– Online financing
– Other online services

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Concepts, Characteristics,
and Models of B2B EC
• Benefits of B2B
– Creates new sales (purchase) opportunities
– Eliminates paper and reduces administrative
costs
– Expedites processing and reduces cycle time
– Lowers search costs and time for buyers to find
products and vendors
– Increases productivity of employees dealing with
buying and/or selling
– Reduces errors and improves quality of services
– Makes product configuration easier
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Concepts, Characteristics,
and Models of B2B EC

• Benefits of B2B (continued)

– Reduces marketing and sales costs (for sellers)
– Reduces inventory levels and costs
– Enables customized online catalogs with different
prices for different customers
– Increases production flexibility, permitting just-in-
time delivery
– Reduces procurement costs (for buyers)
– Facilitates mass customization
– Provides for efficient customer service
– Increases opportunities
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2006 collaboration 16
Concepts, Characteristics,
and Models of B2B EC

• Limitations of B2B
– Channel conflict
– Operation of public exchanges
– Elimination the distributor or the retailer

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One-to-Many: Sell-Side E-
Marketplaces

• Sell-Side Models and Activities

sell-side e-marketplace
A Web-based marketplace in which one
company sells to many business buyers
from e-catalogs or auctions, frequently
over an extranet
– Three major pricing methods:
1. Selling from electronic catalogs;
2. Selling via forward auctions; and
3. One-to-one selling, usually under a negotiated long-
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Exhibit 5.3 Sell-Side B2B
E-Marketplace Architecture

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One-to-Many: Sell-Side E-
Marketplaces

• Direct Sales from Catalogs

– A company usually offers both one catalog for all
customers and a customized catalog for each
large customer
– Offers an opportunity for efficient customization
– Limitations
• How to contact would-be buyers online
• Cost to customer for use of traditional—one solution
is to use extranets

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Selling via Intermediaries

• Intermediaries distribute products to a large

number of buyers
– Buy products from many vendors and aggregate
them into one catalog from which they sell
– Also offer their products online via storefronts
• Using Auctions on the Sell-Side
– Revenue generation
– Cost savings
– Increased page views
– Member acquisition and retention
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Selling via Intermediaries
• Selling from the Company’s Own Site
– Large, well-known companies that frequently
conduct auctions, build an auction mechanism on
the company’s own site
• Using Intermediaries
– No additional resources are required for the
company using the intermediary
– Enable a company to have a robust, customized
auction up-and-running immediately
– Billing and collection efforts are handled by the
intermediary

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

buy-side e-marketplace
A corporate-based acquisition site that uses reverse
auctions, negotiations, group purchasing, or any
other e-procurement method

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement
• Procurement Methods
– Conduct bidding or tendering (a reverse auction) in a
system in which suppliers compete against each other
– Buy directly from manufacturers, wholesalers, or
retailers from their catalogs and possibly by negotiation
– Buy from the catalog of an intermediary
(e-distributor) that aggregates sellers’ catalogs
– Buy from an internal buyer’s catalog, in which
company-approved vendors’ catalogs, including
agreed-upon prices, are aggregated

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

– Buy at private or public auction sites in which the

organization participates as one of the buyers
– Join a group-purchasing system that aggregates
participants’ demand, creating a large volume
– Buy at an exchange or industrial mall
– Collaborate with suppliers to share information
about sales and inventory, so as to reduce
inventory and stock-outs and enhance just-in-time
delivery

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

• Inefficiencies in Traditional Procurement

Management
procurement management
The coordination of all the activities relating to
purchasing goods and services needed to accomplish
the mission of an organization
maverick buying
Unplanned purchases of items needed quickly, often
at non-pre-negotiated higher prices

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

• Benefits of E-Procurement
e-procurement
The electronic acquisition of goods and
services for organizations
– By automating and streamlining the laborious
routines of the purchasing function, purchasing
professionals can focus on more strategic
purchases

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement
• Goals of E-Procurement
– Increasing the productivity of purchasing agents
– Lowering purchase prices through product
standardization, reverse auctions, volume
discounts, and consolidation of purchases
– Improving information flow and management
– Minimizing the purchases made from noncontract
vendors
– Improving the payment process and saving due to
expedited payments (for sellers)

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

– Establishing efficient, collaborative supplier relations

– Ensuring delivery on time, every time
– Slashing order-fulfillment and processing times by
leveraging automation
– Reducing the skill requirements and training needs of
purchasing agents
– Reducing the number of suppliers
– Streamlining the purchasing process, making it
simple and fast
– Streamlining invoice reconciliation and dispute
resolution
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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

– Reducing the administrative processing cost per order

by as much as 90%
– Finding new suppliers and vendors that can provide
goods and services faster and/or cheaper (improved
sourcing)
– Integrating budgetary controls into the procurement
process
– Minimizing human errors in the buying or shipping
process
– Monitoring and regulating buying behavior

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement
• Implementing E-Procurement
– Fitting e-procurement into the company EC strategy
– Reviewing and changing the procurement process
itself
– Providing interfaces between e-procurement and
integrated enterprise-wide information systems (ERP
or SCM)
– Coordinating the buyer’s information system with that
of the sellers
– Consolidating the number of regular suppliers and
integrating with their information systems, and if
possible, with their business processes

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement

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

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One-from-Many: Buy-Side
E-Marketplaces and E-Procurement
• Implementing E-Procurement
– Strategic sourcing is the process of:
• Identifying opportunities
• Evaluating potential sources
• Negotiating contracts
• Managing supplier relationships
– Used to achieve corporate goals including:
• Cost reductions
• Increased quality and service
– E-sourcing solutions attempt to improve strategic sourcing by
making it more effective and efficient
• Just-in-time sourcing ( JITS)
• Strategic consulting services
• Hosted sourcing software
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Buy-Side E-Marketplaces:
Reverse Auctions

request for quote (RFQ)

The “invitation” to participate in a tendering
(bidding) system

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Exhibit 5.6 Reverse Auction Process

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Other E-Procurement Methods

internal procurement marketplace

The aggregated catalogs of all approved suppliers
combined into a single internal electronic catalog
desktop purchasing
Direct purchasing from internal marketplaces without
the approval of supervisors and without the
intervention of a procurement department
group purchasing
The aggregation of orders from several buyers into
volume purchases so that better prices can be
negotiated 36
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Other E-Procurement Methods

• Internal Aggregation
• External Aggregation
• Buying from E-Distributors
• Purchasing Direct Goods
• Electronic Bartering
• Buying in Exchanges and Industrial Malls

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Exhibit 5.8 The Group Purchasing Process

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Other E-Procurement Methods

bartering exchange
An intermediary that links parties in a
barter; a company submits its surplus to
the exchange and receives points of credit,
which can be used to buy the items that
the company needs from other exchange
participants

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Other E-Procurement Methods

• Contract Management
– Reduce contract negotiation time and efforts
– Facilitate inter- and intracompany contract analysis
and development
– Provide for proactive contract compliance
management
– Enable enterprise-wide standardization of contracts
– Improve understanding of contract-related risks
– Provide a more efficient approval process

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Automating B2B Tasks

• Spend Management
– A data warehouse repository designed to manage
data from multiple data sources
– Data management of contracts, supplier catalogs,
and product content
– Data management of pricing
– Detailed standard and ad hoc purchasing activity
analysis and report tools
– Updates, notifications, and alerts regarding
purchasing

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Automating B2B Tasks

• Sourcing Management and Negotiation

– Bid comparison, including exports of detailed bid data
– User management functions that eliminate data redundancy,
simplify data management, and reduce risk to data integrity
– Weighted scoring of parameters to calculate the total value
offered by suppliers
– Total merchandise purchased cost model with winner
selection and ranking
– Reverse auctions and sealed bids, with a full set of features
such as proxy bids and bid-time extensions
– Negotiation support tools

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Automating B2B Tasks

• E-Procurement Management
– E-procurement systems are used for making online
purchases, connecting companies and their
business processes directly with suppliers, and
managing the interactions between them including:
• Correspondence
• Bids
• Questions and answers
• Previous pricing
• E-mails sent to multiple participants

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Infrastructure, Integration, and
Software Agents in B2B EC
• Infrastructure for B2B
electronic data interchange (EDI)
The electronic transfer of specially-formatted standard
business documents, such as bills, orders, and confirmations,
sent between business partners
value-added networks (VANs)
Private, third-party managed networks that add
communications services and security to existing common
carriers; used to implement traditional EDI systems
Internet-based (Web) EDI
EDI that runs on the Internet and is widely accessible to most
companies, including SMEs

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Infrastructure, Integration, and
Software Agents in B2B EC

• Integration for B2B

– Integration with the existing internal infrastructure
and applications
– Integration with business partners

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Infrastructure, Integration, and
Software Agents in B2B EC

• The Role of Standards in B2B Integration

XML (eXtensible Markup Language)
Standard (and its variants) used to improve
compatibility between the disparate systems
of business partners by defining the meaning
of data in business documents
Web Services
An architecture enabling assembly of
distributed applications from software
services and tying
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Infrastructure, Integration, and
Software Agents in B2B EC

• The Role of Software Agents in B2B

– The major role of software agents in B2C is
collecting data from multiple sellers’ sites
– Software agents also collect information from
business sellers’ sites for the benefit of business
buyers

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 Managerial Issues

1. Can we justify the cost of B2B applications?

2. Which vendor(s) should we select?
3. Which B2B model(s) should we use?
4. Should we restructure our procurement system?
5. What are the ethical issues in B2B?
6. Will there be massive disintermediation?
7. How can trust and loyalty be cultivated in B2B?

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Summary

1. The B2B field.

2. The major B2B models.
3. The characteristics of sell-side marketplaces.
4. Sell-side intermediaries.
5. The characteristics of buy-side marketplaces
and e-procurement.
6. B2B reverse auctions.

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Summary

7. B2B aggregation and group purchasing.

8. Other purchasing methods.
9. Administrative tasks.
10. Infrastructure and standards in B2B.
11. Web-based EDI, XML, and Web Services.

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