Transcript Business to Business Exchanges Niti Chopra Nikki Douglas

Business to Business
Exchanges
Niti Chopra
Nikki Douglas
Mike Engdale
Daniel Platschek
April 10, 2003
1
What are Business to Business
Exchanges?

B2B Exchanges are online marketplaces for
businesses to buy and sell goods and services
to and from other businesses.


PetroCosm was an online marketplace where oil
and gas companies could buy and sell products.
Covisint, an exchange in the automotive industry,
aims to reduce parts procurement costs by
purchasing from manufacturers online.
http://b2b.ebizq.net/exchanges/kenjale_1.html, viewed February 24, 2003.
Anonymous, “Covisint Moves Ahead” Manufacturing Engineering, March 2001, Vol. 126, 3, page 34.
http://www.chevrontexaco.com/news/archive/texaco_press/2000/pr7_18b.asp, viewed April 4, 2003.
2
Types of Exchanges

Horizontal
exchanges



Service a broad
range of industries.
For items that are of
generic use.
Must have large
number of suppliers
to be effective.

Vertical
exchanges


Specialize in serving
one industry.
Provide better
collaboration of
resources,
standardizations,
procurement process
efficiencies.
http://www.workz.com/cgi-bin/gt/tpl_page.html,template=1&content=1408&nav1=1&, viewed March 10, 2003.
3
How are products presented
on an Exchange?

Auctions



Sellers offer goods and
buyers bid to buy.
Sellers get highest price.
Reverse Auctions



Buyers post an order for
what they want to buy,
sellers bid.
Buyer pays lowest price.
Electronic
Catalogs


Sellers determine the
content of catalog and
prices.
Online
Distribution

Established buyers can
buy online from their
supplier.
Domaracki, Gregory S., Millot, Francois, “The Dynamics of B2B E-Commerce” AFP Exchange, Jul/Aug 2001, Vol. 21 4, pp. 50-57.
4
Exchange Statistics

Covisint – formed by GM, DaimlerChrysler,
and Ford



“Big 3” invested a total of $200 million to start
Covisint.
Approximately 11,000 suppliers have used
Covisint.
PetroCosm – formed by Chevron

Ended up almost $90 million in debt.
Koch, Christopher, “Covisint’s Last Chance; Can an old guy come out of retirement and save one of the icons of the new
economy?”, CIO, December 1, 2002, Vol. 16 Issue 5, pages 62-69.
Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
5
B2B E-Commerce Growth
E-Marketer
estimates that the
US share will
account for one half
of the total. They
estimate US share
to be $721 billion in
2003 and $1.01
trillion in 2004.
http://www.crmassist.com/news/dispnews.asp?I=90400&t=99, viewed March 23, 2003.
6
As Managers…



Exchanges could introduce you to new
customers (supplier) or help reduce costs
(buyer).
Introduce your company to e-commerce by
purchasing “non-essential” supplies online
using an exchange.
Company may be forced to engage in online
business by a customer.
7
What Was PetroCosm?


Global internet B2B marketplace for
companies to buy and sell oil and gas
products and services.
Browser-based access to products and
services including drilling, electrical, pipes,
valves, and fittings; and professional,
engineering, and construction services.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
8
Founding Members


Chevron Corp. and electronic-commercesoftware developer Ariba Inc. along with
Crosspoint Venture Partners and Requisite
Technology Inc.
Texaco Inc. joined the partnership 2 months
later.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
9
Goals


To create the first B2B marketplace owned by
buyers and suppliers across the energy
industry.
Benefits such as aggregated purchasing,
lower transaction costs and seamless access
to global markets could drive $11 billion in oil
and gas industry savings and efficiencies.
http://www.chevrontexaco.com “Petrocosm announcement”, March 23, 2000.
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Goals


Buyers were projected to save between 5%
and 30% by reducing paper forms and other
transaction costs.
Sellers were promised the opportunity to
expand their customer base, develop new
markets and reduce costs and paper work.
“Chevron and Ariba To Form Web Market For Energy Industry”, The Wall Street Journal, January 20, 2000.
http://www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil and Gas Industry”, July 18, 2000.
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Implementation



Exchange went live in July of 2000.
Chevron planned to target a “substantial
portion” of its annual $10 billion in spending
through PetroCosm.
Former Halliburton VP, Norman C. Chambers,
selected as Chief Executive Officer.
http://www.chevrontexaco.com “PetroCosm Launches Online Marketplace for Oil and Gas Industry”, July 18, 2000.
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PetroCosm’s Downfall



November 2000 merger of Chevron and
Texaco left only one major buyer in the
exchange.
Competitors were reluctant to do business on
what was seen as ChevronTexaco’s internal
supplier network.
Competing exchange, Trade-Ranger, offered a
much broader range of buyers including 14
major oil refining companies.
Darbonne, Nissa & Haines, Leslie, “Chevron, Texaco to form worlds’ fourth-largest oil” Oil & Gas Investor, November 2000.
Sliwa, Carol, “Oil firms rush to set up supply nets” Computerworld, January 24, 2000.
Messmer, Ellen, “Regulators OK petrochemical B2B exchange”, Network World, August 14, 2000.
13
PetroCosm’s Downfall



After only 1300 transactions in its first year,
PetroCosm was $84 million in debt.
ChevronTexaco refused to pump money into
the exchange and even tried to buy back the
company for pennies on the dollar.
PetroCosm shareholders refused the offer and
filed for Chapter 11 bankruptcy protection in
June of 2001.
Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
14
PetroCosm Conclusion



Exchange was focused on only a few
major buyers.
The e-commerce collapse dried up
PetroCosm’s venture capital.
ChevronTexaco refused continued
support of a solution they believed they
could develop in-house.
Bransten, Lisa and Herrick, Thaddeus, “E-Business: Starting Gate”, The Wall Street Journal, October 15, 2001.
15
Covisint Case Study



Background
Services
Case Study Conclusion
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What is Covisint

Web Based Global Business – to –
Business Exchange For The Automotive
Industry



“Co”
represents Connectivity, Cooperation
& Collaboration.
“Vis” sites Visibility on the Web.
“Int” Integrity to conduct Business.
proquest.umi.com/auto’s new driving range
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Covisint’s Background



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GM & Ford launched their own
exchange
TradeXchange by GM & AutoXchange by
Ford
Thrilled both GM & Ford but suppliers
were thrown into a panic
So came the idea to build a common
exchange
www.metalcenternews.com/ big three go b2b
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Covisint’s Background


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Lauched Feb 2000, Live Oct 2000
Public Exchange
Founding Members
www.covisint.com
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Covisint’s Background

Industry Participants (Suppliers)

Technology Partners
www.covisint.com
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Covisint’s Background

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Technology Providers
VW, BMW did not join
Currently has 11,000 suppliers
Based at Southfield, Michigan
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis;
InternetWeek, Manhasset; Sep 17, 2001, Iss. 878; pg. PG.1
www.covisint.com
Automotive network shifts into gear; Patrick Waurzyniak; Manufacturing Engineering, Dearborn; Jan 2001; Vol. 126, Iss. 1; pg. 62
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Covisint’s Mission




Stream line the heavily fragmented supply
chain network.
Bring down the procurement cost & speed
up the process.
Eliminate unnecessary paperwork &
administrative bottlenecks.
Allow faster communicaton within & outside
the organization.
www.marketvoices.com
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Covisint’s Mission
OEM
GM
DAIMLER CHRYSLER
OEM
FORD
OEM
NISSAN
RENAULT
TIER ONE
SUPPLIER
TIER ONE
SUPPLIER
TIER ONE
SUPPLIER
TIER ONE
SUPPLIER
TIER ONE
SUPPLIER
TIER TWO
SUPPLIER
TIER TWO
SUPPLIER
TIER TWO
SUPPLIER
TIER TWO
SUPPLIER
TIER TWO
SUPPLIER
Tier three
Supplier
Tier three
Supplier
Tier three
Supplier
Tier three
Supplier
Tier three
supplier
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Covisint’s Services




Collaboration
Procurement Solutions
Supply Chain Management
Quality Assurance
24
Collaboration

Collaboration- Virtual Project
Workspace


It lets manufacturers & suppliers use the web to
design & review how parts are manufactured.
Benefits


Decreases product development time
Decreases Cost
www.covisint.com
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and
Chuck Moozakis, sep17,2001
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Covisint Procurement



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Quote Manager - Get RFQ electronically.
Benefits - Save costs, delays & time.
Catalogs - An electronic purchasing
environment for indirect material.
Benefits



Average reduction of 73% in transaction costs.
Paperless and automated service.
Average saving of 74% in process time.
www.covisint.com
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Procurement Solutions

Asset Management -

Benefits -

Auctions -

Benefits
It lets carmakers
liquidate excess shop floor equipment & other assets.
Help users to identify, appraise,
categorize, track & sell assets.
negotiation



Rapid, real time, web based
Process reduction of 72%
Users reported savings of 5-30%
Both buyer & seller save time
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1];
David Joachim and Chuck Moozakis, sep17,2001
www.covisint.com
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Buyer Auction
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Quality Assurance

It offers advanced quality planner
& problem solver.
Advanced Quality Planner - It is used

Goals- The process helps create more robust,

by automakers to make sure that parts meet
necessary specifications before they go into
production.
problem-free designs and minimizes quality defects
from reaching the customer.
www.covisint.com
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Quality Assurance

Problem Solver- It allows OEM’s & suppliers
to solve the problem together.

Goal- The goal of Problem Solver is to help
permanently correct problems not eliminated
by the AQP Process.
www.covisint.com
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Supply Chain Management

Fulfillment Service -

Benefits
It gives members
real time information about parts, inventory,
and anticipated demand pulled directly from
supplier’s legacy systems.



Reduction in inventory of 30-70%
Reduction in premium freight costs of 50-90%
Reductions in admin costs of 40-80%
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis
www.covisint.com
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Business Model



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Standard pricing for all services.
Collaboration - monthly subscription fee.
Procurement - per event fee.
Quality Assurance - monthly subscription
fee.
Supply Chain - a combination of
transaction & monthly subscription fees.
Can Covisint Find Its Way? -- Low adoption rates force auto exchange to radically alter mission; [1]; David Joachim and Chuck Moozakis
sep27,2001
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Is it a Success?


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The founders account for 80 to 90 percent of
revenue.
It laid off one-third of its staff of 300.
Revenue $60 million, well short of the
projected $100 million.
Covisint will broker the sales of $50 billion but
it’s a far cry from the estimated $240 billion.
www.detnews.com/ covisint struggles to survive in emarketplace by doron levin,bloomberg news,august 23, 2002
proquest.umi.com/ Covisint’s last chance,christopher koch, dec1 2002
www.auto.com archives/ covisint hits rough patch as business falling, jamie butters,december9,2002
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Case Study Conclusion
“Covisint is continuing to fall short of it’s
lofty intentions, we think it’s going to
disintegrate within the next 18 months.”
Scott Upham, Senior Director J D Power & Associates (December 9, 2002)
Industry experts say the only way to
save Covisint is to find a new way to
make money – and fast.
www.auto.com/archives/ covisint hits rough patch as business falling, by jamie butters& jeff bennett, dec 9,2002
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Covisint’s Strengths

The three founding members

New CEO Harold Kutner

Provides a single platform for suppliers
Online buy gains speed; David Hannon; Purchasing, Boston; Feb 7, 2002; Vol. 131, Iss. 2; pg. 22, 3 pgs
35
Covisint’s Weaknesses

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Suppliers have resisted using Covisint
Relied on tier one suppliers to bring in
lower tiers.
Competition.
Anti-trust investigation.
Online buy gains speed; David Hannon; Purchasing, Boston; Feb 7, 2002; Vol. 131, Iss. 2; pg. 22, 3 pgs
Motorcity shakeup; Christopher Koch; Darwin, Framington; Jan 2002; Vol. 2, Iss. 1; pg. 46, 6 pgs
VW Widens Private Exchange; Chuck Moozakis; InternetWeek, Manhasset; Dec 10, 2001, Iss. 888; pg. PG.1
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B2B Best Practices



What have we learned?
Review lessons from Covisint,
Petrocosm, and other B2Bs.
Conclusion.
37
B2B Best Practices

B2B initiative must have full support
from top management.
“Because implementing e-business requires
radical changes in business activities, it is
critical for development teams to receive
support from upper management.”
Phan, Dien D.
Information Systems Management
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B2B Best Practices

B2B strategy (vision) must be fully
integrated into the company’s overall
strategy.
Exchanges are a new channel meant to
enhance, not replace, existing ways of doing
business. In their role of bringing customers
and suppliers together, exchanges must not
forget that this is just another way to bring
customers and suppliers together.
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B2B Best Practices
“e-business should complement rather than
cannibalize traditional ways of competing.
Companies that use e-business to make
traditional business process better will do
better that those that invent and implement
new combinations of virtual and physical
activities. ”
Phan, Dien D.
Information Systems Management
40
B2B Best Practices

The technology factor


In the 90s, the major barrier for companies to
engage in B2B was the ease and speed
(connectivity) at which companies could exchange
information.
Today, security and the exchange of confidential
information (privacy) is considered B2B’s enemy
number one.
41
B2B Best Practices

The security issue - Covisint
“The majority of our parts are specialized. We
would go online with parts that tell our
competition what we will be doing 2-3 years
from now.”
Hubert Bergmann, VW’s Management Board
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B2B Best Practices

The security issue - PetroCosm
Petrocosm, started by Chevron, also had its
share of difficulty convincing other companies
in the oil industry to join. Only Texaco, which
later merged with Chevron, was willing to join
the exchange.
43
B2B Best Practices

Use the technology wisely.
“Some companies have used internet
technology to shift the basis of competition
away from quality, features, and service and
toward price, making it harder for anyone in
the industry to turn a profit.”
Phan, Dien D.
Information Systems Management
44
B2B Best Practices

Keep the technology current while
keeping good cost control.
“To succeed companies will need to
constantly search and implement innovative
strategies that capitalize on both the power of
the internet and the changes in both
traditional and electronic markets.”
(Scarborough and Spatarella, 1998)
45
B2B Best Practices

Keep the technology current while keeping
good cost control.

GM Dealer Advantage: Using the flexibility of the
technology to their advantage, Covisint is
branching out into new directions. Through
Covisint, GM will link dealers to online catalogs
and order forms. “That’s a new space for us, and
it expands what we already provide online to
manufacturers.”
Wes Arrington, VP Global Accounts for Covisint
46
B2B Best Practices

Listen to the users (Buyers and
Suppliers).


Know what users want and what the market
needs and values and what users will let you do
for them.
The tools and/or applications that Covisint offers
today are a direct result of mainly the buyer’s
input. Covisint’s new CEO promises to listen more
to suppliers.
Koch, Christopher, “Covisint’s Last Chance; Can an old guy come out of retirement and save one of the icons of the new economy?”, CIO,
December 1, 2002, Vol. 16 Issue 5, pages 62-69.
47
B2B Best Practices

Listen to the users.
“Delivering personalized web content. Web
content must be accurate, current, and
appropriate for each individual customer. Intel
works closely with sales forces to ensure that
customers are getting what they need and
are coming back to the site.”
Phan, Dien D.
Information Systems Management
48
B2B Best Practices

B2B is not for everyone.
The case of AgriPlace.com: An
exchange that tried to put the buyers
and the farmers together leaving the
grain brokers out.
49
B2B Best Practices

Implement good e-business education
and training.

Covisint provides online training to reduce the
number of support calls. Some customers require
basic training on how to use the Web.
50
B2B Best Practices
51
B2B Best Practices
The Matrix – Covisint’s Differentiators
52
B2B Best Practices
The Matrix – Covisint’s Differentiators

Created a single technical platform
(standardized) so suppliers could easily and
cost effectively join the exchange. Keep in
mind some of these suppliers are resourceconstrained as the profit margins are
continually squeezed by the Buyers.
53
B2B Best Practices
The Matrix – Covisint’s Differentiators

First to introduce Collaborative Product
Development: Design sharing between
OEMs and suppliers on the web. Involves
the supplier in the design phase of
product development.
54
Conclusion
Where do we go from here?

The statistics paint a grim picture:
1,500 Exchanges in July 2001
Only 700 Exchanges in July 2002.
Jorgensen, Barbara “The Shakeout in B2B Exchanges”
Electronic Business, 2003.


B2B is here to stay, however, it is still in its
infancy stages and we have seen its growing
pains.
Are B2Bs ready to take the place of the
purchasing department?
55
Any Questions?
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