BUSINESS-TO-BUSINESS: A SUPPLIER’S PERSPECTIVE

Steve Lederer1), Jason C.H. Chen2)

1)
Industrial Engineer, Boeing Corp.( [email protected])
2)
Gonzaga University ([email protected])

Abstract

Electronic Commerce (EC) is the exchange of business-related information using

electronic formats, and it can replace traditional paper-based workflows with better

means of communication among consumers and businesses. The networking reduces the

transportation cost of information, and this change in cost structure has changed business

models, resulting in the need of changing the systems that incorporate those models.

With the explosion of the Internet, Business to Consumer (B2C) applications has

flourished, and the same concept and technology have been used to advance Business to

Business (B2B) applications to reduce costs and increase revenues.

This paper examines the supplier and customer relationships that have reached the

point where communication is vital in order to, not only remain in business, but also

sustain profitability. Emphasis is on the supplier side because suppliers have more and

difficult issues to manage. For example, they are basing a majority of their investments

on the needs of their customers to ensure that the customer’s satisfaction can be

accomplished. Therefore, it is a critical issue for the supplier that how to choose a new

electronic format to use when dealing with customers and internal supply chains.

Although the customer usually comes first, this is an instance where the suppliers need to

put themselves at least on the same level as their customers. By doing so they will enable

their company to have a more profitable and longer future.

Keywords: B2B, E-Commerce, Supply chains.
 1. INTRODUCTION

Technology has had a tremendous impact on today’s workplace in terms of

creating new ways of doing business. The expanding capabilities of networks, the

extensive use of the Internet, and the radical improvements in personal computers have

all contributed to creating a foundation for conducting business electronically, and

bringing us into the age of electronic commerce (E-Commerce or EC). EC is the

exchange of business-related information using electronic formats, including electronic

data interchange (EDI), e-mail, electronic bulletin boards, faxes, and electronic funds

transfer (Turban et al. 2000). EC technologies are designed to replace traditional paper-

based workflows with faster, more efficient, secure, and reliable communications

between computers.

EC provides a direct link to customers, allowing companies to bypass middlemen

and advance the delivery of new products and services to customers. To many people,

the term EC means shopping on the Internet. Although consumer spending on the Web is

expected to exceed $800 billion by 2003 (Schneider and Perry 2000), EC’s scope

encompasses much wider spectrum of business activities. The term Electronic Business

(EB) is usually used interchangeably with EC.

With the explosion of the Internet, EC has quickly become one of the primary

ways that corporations move products to customers (Turban et al. 2000). A recent survey

(Cowen 1999) found that, as companies move their business to the Web, EC deployments

are driving investments up in technology infrastructure, and the implementation of EC is

up sharply from 45% of respondents in 1998 to 57% in 1999.

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More and more businesses are embracing EC as their core business strategy

because of its ability to increase productivity and profit. For example, Information

technology (e.g., EC) is an important enabler of effective supply chain management.

Much of the current interest in supply chain management is motivated by the possibility

that are introduced by the abundance of data and the savings inherent in sophisticated

analysis of these data. The innovative opportunities coming to the fore with EC,

especially through the Internet. This paper first describes the business models used in

business-to-business EC (B2B). Business processes and commerce activities on the

supplier sides enabled by EC are then discussed. Open architecture of the Internet

provides trading partners with vast opportunities for customizing their information

exchanges and collaborative work is also addressed.

2. BUSINESS-TO-BUNESS (B2B)

The Business Model

B2B covers a broad spectrum of applications that enable an enterprise or business

to form electronic relationships with their distributors, resellers, suppliers, and business

partners. Turban et al. (2000) uses three models to depict B2B. The first model, and the

most commonly known one, describes B2B as a supplier-oriented marketplace; that is,

consumers and business buyers all use the same supplier-provided marketplace. Most of

the manufacturer-driven electronic stores belong to this category. The second model

describes the B2B to be a buyer-oriented marketplace. Instead of searching all e-stores

and e-malls, big buyers, such as GE, may open an electronic market on their own servers

and invite potential suppliers to bid on orders. The last one is the intermediary-oriented

marketplace. In this platform, business buyers and sellers are matched to conduct their
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daily businesses. Boeing’s PART, ProcureNet, and Manufacturing.net belong to this

category.

A B2B model by Sood et al. (1999) is illustrated in Figure 1. In this framework,

multiple buyers and suppliers are brought together to create a larger and more efficient

entity. Additional services can be delivered through the e-market format in areas of

financial, audit, transportation, logistics, or customer services.

----------------------------
Insert Figure 1 Here
----------------------------

Aggregated purchasing power, dynamic trading mechanisms such as B2B

auctions, streamlined EC processes, and open, Internet-based access to larger markets

provide business buyers and suppliers with new efficiencies, new market opportunities,

greater choice and competitive advantage. Therefore, the B2B economy presents several

opportunities for creating new revenue streams and reducing cost.

Implementing business-to-business (B2B) connectivity between trading partners can

be challenging, especially from the supplier’s perspective. Within most supply organizations,

the largest customers have the market clout to dictate e-business methods and standards to

their suppliers. Suppliers, on the other hand, must respond to customer initiatives and

comply within time frames that are established by their customers. Responding to the needs

of a huge customer can be frustrating, especially when the supplier must balance its priorities

against those of its customers. Fortunately, flexible, standards-based connectivity solutions

have emerged that allow suppliers to meet customers’ requirements while taking care of their

own needs as well.

Although larger customers are pressuring suppliers to communicate electronically

and automate processes, compliance should not be the supplier’s primary concern. The focus
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should be on doing what is best fort their business. How can they improve execution within

their own supply chain? How can they streamline communication with all their customers,

both big and small? Some suppliers, already view automation and the Internet as tools that

will enhance their competitive positioning. If this isn’t the case today, they’ll probably be

thinking along these lines in the near future. Many suppliers are already exploring options

that allow them to link their trading partners together and incorporating these changes in their

traditional business practices as part of their strategic plans (http://... Accenture).

Partner pressure to transact online isn’t focused solely on the suppliers either.

Suppliers are also asking their customers to participate. For example, suppliers that are

currently processing a number of purchase orders manually may be motivated to help

smaller customers move to online ordering. Wherever suppliers are at today with

technology and automation, determining where their company fits within the new

economy and how they can leverage recent technology should be the priority (http://...

Intragiga).

3. SUPPLIERS NEEDS

Moving forward suppliers need to understand the benefits that can be gained by

conducting business over the Internet and eliminating manual processes. They want to be

assured that they can migrate at their own pace and that when they do begin transacting

electronically, they do so knowing their transactions are secure and reliable. They also

want to be careful to avoid investments that will impede their adaptability and flexibility.

They can accomplish this through investing in solutions that won’t tie them to proprietary

technology or systems that will consume capital and other resources as they find it

necessary to upgrade and meet future demands. Smart money will be spent on systems
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and solutions based on open standards and built with open architectures. These systems

will generally yield a 20%-45% cost savings (http://... Accenture).

Adopting an e-business strategy that will enable suppliers to compete successfully

long-term requires making thoughtful investments today. A successful e-business

strategy should consider the immediate need for transaction processing. With this

strategy, suppliers can make their business run more smoothly using technologies such as

online order management. It also increases the potential demand for requirements such

as collaboration and tighter integration with trading partners in the future.

Trends Impacting Suppliers

Unlike their customers, suppliers may not be in a position to dictate e-commerce

initiatives or standards. Suppliers are more likely faced with the need to adapt to

whatever type of arrangement their customers define. Most suppliers deal with a number

of customers, so they must meet a number of potentially conflicting demands. As time

goes on, their customers will increasingly require a better means of communication with

them.

Initially suppliers can anticipate greater demand for the delivery of inventory

figures and production schedules electronically. To accomplish this, their customers

should provide greater access to point of sale information, by SKU and by store if

needed. Collaboration will become important as buyers (customers) and sellers

(suppliers) begin to realize the benefits they can receive by exchanging forecasts and

other data. This will lead to a transfer of data from within the customer and the supplier

enterprises. On one hand, suppliers will be faced with new costs and added demands.
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On the other, it is an opportunity for the supplier to validate demand and run their

business more effectively.

Optimizing Communication

Many suppliers are large organizations with intricate supply chains while others

are smaller. In addition, suppliers may have relationships with a few large customers as

well as numerous smaller ones. There are both upstream and downstream opportunities

for improving supply chain execution through online order management, purchasing,

invoicing, and collaboration. Regardless of size, automating collaborative supply chain

transactions represent an opportunity for cost savings for all trading partners.

If the electronic data interchange (EDI) is being used, suppliers may have already

begun to realize the benefits of automation. Larger suppliers may be using EDI over

value-added networks to communicate with customers and sometimes within their own

supply chain. If this is the case, the supplier may already be aware of the number of

disadvantages to VANs. These disadvantages have fueled the movement towards more

cost-effective and flexible forms of connectivity among trading partners. VANs charge

on a per transaction basis. This makes their use cost prohibitive to all but the largest

suppliers. Even for those that can afford VANs, transaction sets are highly limited due to

the transactional costs of VANs. They also rely on store-and forward communications

rather than real-time communications that are demanded by today’s market. In addition,

they are not as secure as today’s Internet-based solutions, which is covered later in this

paper (http://... Gecti).

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EDI on the Internet

As the Internet gained prominence as a tool for conducting business, trading

partners that had been using EDI began to eye the Internet as a potential replacement for

the expensive leased lines and dial-up connections they had been using to support both

direct and VAN-based EDI. Companies that had been unable to afford doing EDI began

to look at the Internet as an enabling technology that might get them back in the game of

selling to large customers that demanded EDI capabilities of their suppliers (Schneider

and Perry, 2000).

The major roadblocks to conducting EDI over the Internet were overall concerns

about security and the Internet’s general inability to provide audit logs and third party

verification of message transmission and delivery. However, as the basic TCP/IP

structure of the Internet was enhanced with secure protocols such as HTTP/S and various

encryption schemes, business worried less about security issues, although concerns still

existed.

New forms of Internet-based VANs exist, but these still rely on a business model

that requires charging users per transaction. Both supplier and its trading partners pay for

each piece of document/information that is sent and received. With today’s Internet-

based B2B connectivity solutions, suppliers will want to consider business models with

more compelling return on investments (ROI). For the most part, this means looking for

connectivity solutions based on flat fees. Although annual licensing and maintenance

fees can be anticipated, these types of arrangements eliminate unpredictable transaction

costs and provide users with an unrestricted ability to send as much data back and forth as

they want (http://... cas-ebusiness). The ability to transfer information over the Internet
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without transaction fees opens up a wide range of other applications. Trading partners

can send and receive POS data, inventory status, purchase orders, invoices, products

plans, etc. to their suppliers and customers over a secure medium that is directly linked to

their system. Furthermore, internal applications may exist that support activities such as

sending contribution information to a 401K administrator or sending information about

employees to a health insurance provider. Solutions based on flat fees lead to faster ROIs

as well as greater opportunities for suppliers.

4. OPEN ARCHITECTURE OF EDI

Open architecture of the Internet that provides trading partners with vast

opportunities for customizing their information exchanges and collaborative work.

Today, many suppliers have already reached a major decision point. Their customers are

requiring that they move from VAN-based or paper transactions to a new Internet-based

e-commerce system (http://... Gecti). Many suppliers perceive this as an extra investment

that they have to make to improve efficiency of the entire supply chain. Some are not

happy about having to spend money for software and consulting services to change the

way they are currently doing business when they don’t see anything wrong with what

they are doing now. In most cases, they are concerned that they will have to implement

multiple systems in order to meet the widely varying specifications established by the

major customers. By choosing a solution built on industry standards, created by

American National Standards Institute (ANSI) and Accredited Standards Committee X12

(ASC X12) for the domestic EDI standards and United Nations/EDI for Administration

Commerce and Trade (UN/EDIFACT), suppliers can eliminate this concern (Puck). An

open solution will be able to support both VAN and Internet-based transactions and
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provide a migration path that will lead to the complete elimination of transaction fees

over time. Flexible solutions will enable this migration to take place all at once or one

transaction at a time so that suppliers and their trading partners can migrate at a pace that

best suits their individual businesses. Open solutions will also enable trading partners to

leverage their current investment in EDI.

If suppliers are not currently using EDI, they should still consider compatibility

with EDI as a requirement for their e-business solution. Over the near and long term,

suppliers can anticipate growing support for XML (Extensible Markup Language) along

with the continuous need to support EDI. For this reason, suppliers should make certain

that any solution they adopt supports both of these key industry standards (Intragiga).

Supporting Industry Standards

A critical issue for suppliers is the ability to support connectivity and

collaboration with existing trading partners as well as future customers and suppliers. An

awareness of the different types of virtual entities will eventually need to connect to its

important for a supplier to gain. These include both public and private exchanges.

Public exchanges are independent entities bringing a lot of buyers and sellers into one

place. These e-market-places offer a neutral ground for many purchase decisions of

primarily commodity items. A twist on this mode includes coalition e-market-places that

bring together groups of large companies usually focused on a specific industry such as

automotive, food, or energy.

Private exchanges, on the other hand, are usually anchored by a large buyer and

include its suppliers and their trading partners. Business transactions with disparate

exchanges can be achieved only through support for a multitude of connectivity,

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document, security, EDI, and XML standards. While a few key customers may have

created their own e-commerce solutions, the trend is toward the adoption of industry

standards such as XML and its various formats such as ebXML for global commerce

(http://... Intragiga). XML technology will allow trading partners to share data from

enterprise systems.

The increasing acceptance of these standards and the ability of some B2B

connectivity software vendors to support proprietary protocols means that suppliers can

meet the demands of multiple customers and automate their own supply chain, all with a

single solution. Implementations of this type eliminate the headaches of deploying and

maintaining multiple individual point solutions that would otherwise be necessary to

accommodate differing customer, XML, exchange, and IT requirements. Further, a

single point of connectivity to all customers, suppliers, and exchanges allows for

gathering and analyzing business trends.

Security is always a critical issue when business transactions move over the

Internet. This concern has been effectively addressed by several new standards that make

it possible for the Internet to be used for fast and secure communication. The AS1

standard secures file attachments over e-mail. These attachments are often EDI data but

can contain information such as spreadsheets, CAD drawings, and XML pages. A new

standard that is being adopted by many e-commerce companies is AS2. This uses HTTP

or HTTP/S protocols. It uses secure sockets layer (SSL) to provide an extra level of

security beyond the public key encryption method.

The key advantage of AS2 is that it provides a direct point-to-point connection for

real-time delivery of transactions, eliminating the delays involved with VANs or even e-
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mail, and its ability to send an immediate acknowledgement when a message is received.

This message delivery notification (MDN) can then be used to eliminate data redundancy

between trading partners (http://... cas-ebusiness). As suppliers review alternative

solutions, they should make certain the options considered support those standards

specific to their industry and business model.

Collaboration Capabilities

Another important thing for suppliers to look for is a solution that integrates

transactions and collaboration capabilities into the same platform. According to the

Intragiga website, “This powerful concept will eventually be implemented on a broad

scale to enable communication and collaboration between buyer and sales representative,

replenisher and demand planner, category analyst and category manager, etc. Data

sharing on this level leads to identifying exceptions, aligning plans, setting goals, and

measuring performance, which provides the trading community and its participants with a

tremendous competitive advantage.”

Pioneered in the retail industry through CPFR (collaboration, planning,

forecasting, and replenishment) initiatives, supply chain collaboration is becoming

increasingly important in manufacturing across a wide number of market sectors (cas-

ebusiness). The success of these initiatives is realized in faster inventory turns, reduced

time to market, and lower costs. Proven, measurable results are driving adoption at a

rapid pace.

This approach will help suppliers meet their customers’ requirements to securely

share, analyze, and use documents, objects, and XML data in real time while automating

data capture, exposure, analysis, reporting, comparison, and secure transfer (Inside).
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Information such as production forecasts can be shared among trading partners.

Automated exchanges of information can be complemented with business rules that

trigger corrective actions. For example, the supplier’s forecasts are automatically

updated based on the customer’s sales forecasts.

The basic idea of selecting a solution that supports collaboration as well as

transactions is meeting present and future demands from customers without having to

purchase and integrate another solution down the road. A solution that offers integration

or the potential to integrate in the future also lowers acquisition costs and provides easier

technology migration and more centralized reporting.

Achieving Full Participation

Suppliers should be aware that the greater the percentage of their business they

can conduct electronically, the greater the cost savings they will achieve. IBM alone,

reported by the CAS-Ebusiness website saved $3.6 billion in materials acquisitions costs

in fiscal 2000. This does not suggest that the supplier join the ranks of the big companies

but that they do select a solution that will provide both compelling and economic options

for every trading partner within their supply organization. To enable this, suppliers of e-

commerce software beginning to deliver products that scale to meet the needs of the

smallest suppliers and customers as well as those of the largest trading partners. This is

accomplished by providing tiered solutions that support complete supply chain

integration. The supplier’s trading partner can determine where they fit in and decide for

themselves how they want to participate. A tiered solution will enable them to choose

between server, PC, or browser-based options that provide connectivity and different

levels of functionalities. These choices promote 100 percent supplier participation, a goal
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that is not only achievable and practical, but one that will soon become a competitive

imperative.

Which option each of their trading partners should choose will depend on the

answers several questions including: 1) What is the annual transaction volume and costs

using current technology? 2) What is the potential savings from automating manual

transactions? 3) How many trading partners are they transacting business with? 4) How

will future e-business initiatives such as supply chain collaboration impact their business?

Several candidates are typically already transacting business electronically and

integrating EDI into their backend systems. Many are currently relying on VANs to

transport data and are looking for ways to minimize the transaction fees associated

solutions of this type. In addition to being a supplier, these companies also play the role

of buyer or customer in their own supply chains. These larger companies can typically

pay for the software in a matter of months, simply through reducing VAN fees. The

potential savings through 100 percent of their supply chain takes the savings considerably

higher, given the elimination of costly and error prone paper processes. The opportunity

for supply chain collaboration creates a compelling additional benefit.

Where server-based solutions don’t make sense, a connectivity solution that runs

on a PC may be ideal. The cost of this approach is considerably less, which makes it

easier to justify applied to smaller suppliers, enabling them to receive POS through a

browser-based solution, acknowledge receipt, send advance ship notices, invoice and

maintain a record of each transaction. Suppliers adopting this approach will experience

reduced errors and faster turnaround of invoices, adding to the overall effectiveness and

efficiency of the supply chain (http://... cas-ebusiness).

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The availability of tiered, scalable connectivity solutions that combine transaction

processing and collaboration has made e-business decisions much simpler. The

emergence of new Internet standards has paved the way for open platforms that support

multiple standards. Rather than simply complying with the disparate demands of

individual customers, open solutions enable suppliers to deploy a solution that best meet

their needs, while satisfying the needs of all their trading partners, and not just those of

their largest customers.

5. CONCLUSION

Keep an Eye on the Future

For enterprises of all sizes, the Internet has ushered in a new age of opportunity.

“U.S. businesses are universally preparing to buy and sell online, leveraging the Net to

build deeper relationships with their business partners,” said Steven J. Kafka, e-business

trade research analyst at Forrester Research. The Internet’s impact on the U.S. business-

to-business market place will trigger more than $6 trillion in trade by 2005, according to

a new report by Jupiter Communications. B2B e-commerce will represent 42 percent of

the total U.S. business-to-business non-service spending. With B2B e-commerce still in

its infancy and extraordinary growth anticipated, suppliers can count on further change.

In just a few years, highly automated business process between trading partners

will produce more tightly coupled supply chains that mesh so closely that they function

almost as a single entity. Information will flow instantaneously from tip to end, allowing

these specialized organizations to flex with ease to accommodate shifting demands.

While these predictions of the future are proliferating, suppliers today face the challenge

of determining how they can best fit within the new economy by leveraging recent
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advances in technology. Clearly, the suppliers that flourish in this new environment will

be those that go beyond simply meeting the individual demands of their customers.

Rather, they will create e-business strategy that will optimize their relationships with

their customers as well as drive effectiveness and efficiency into their own supply chains.

Fortunately, solutions that will enable them to meet all of their needs currently exist

today.

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Figure 1: A B2B Model by Sood et al. (1999)

Banks,
Financial
Institutions
eCredit.com

Suppliers
Enterprises Customers

 Production
materials
 Operating Logistics
goods,
Celarix, NTE