When You’re Big, You Can Be Your Own B2B E-Marketplace

Part one : case study 1

Business to Business (B2B) e-marketplaces are the growing trend in the B2B e-commerce business model. Businesses from all industries and countries can gather, perform commerce functions, share mission-critical information, and deploy infrastructure applications that allow those organizations to tie their internal systems to each other.

But some companies—the largest ones—don’t have to play in the generic B2B e-marketplaces. Instead, they can build their own and literally require that their suppliers participate. Once such company is Volkswagen AG. Its B2B e-marketplace is called VWgroupsupply.com (www.vwgroupsupply.com).

Page 152Volkswagen AG offers eight brands of automobiles—Volkswagen (passenger), Volkswagen Commercial Vehicles, Audi, Bentley, Bugatti, Lamborghini, Seat, and Skoda. In 2003, Volkswagen spent almost 60 billion euros, or approximately $77 billion, on components, automotive parts, and MRO materials for its manufacturing operations. When you spend that much money with your suppliers, you can open and run your own B2B e-marketplace.

VWgroupsupply.com handles 90 percent of Volkswagen global purchases. Almost all requests for quotes, contract negotiations, catalog updating and buying, purchase-order management, vehicle program management, and payments are handled electronically and online through VWgroupsupply.com.

Gains in efficiency and productivity coupled with material costs reductions have been tremendous. The cost savings alone generated over the last three years were more than 100 million euros, or approximately $127 million.

Volkswagen requires that each of its 5,500 suppliers use VWgroupsupply.com for any interactions. Suppliers place product and pricing catalogs on the system, respond to requests for quotes, and collaborate with Volkswagen engineers on new product designs, all in the safe and secure environment of Volkswagen’s proprietary B2B e-marketplace.

By requiring its suppliers to interact with Volkswagen in the e-marketplace, purchasing agents no longer have to spend valuable time searching for information and pricing. Volkswagen has, in essence, created a system that brings the necessary information to the purchasing agents. This new system within VWgroupsupply.com is called iPAD, or Internal Purchasing Agent Desk.

Prior to the implementation of iPAD, purchasing agents entering a purchase order for a vehicle front module had to use numerous separate systems to complete the process. They had to retrieve information from a supplier system and its database, query information in Volkswagen’s internal parts information system, obtain information from a request-for-quotes database, enter information into a contract- negotiation transcript system, and interact with several other systems and databases. In all, the purchasing agent had to log into and use seven separate systems. Analysis revealed that Volkswagen purchasing agents were spending 70 percent of their time finding, retrieving, analyzing, validating, and moving information. This took away valuable time from such tasks as negotiating better prices with suppliers.

Using a form of an integrated collaboration environment, purchasing agents now participate in a simple three-step process. First, iPAD captures and sends a business event to the purchasing agent, such as the need to order vehicle front modules. Second, iPAD attaches to that communication other necessary information such as information about potential suppliers, their costs, and other forms of analysis and descriptive information. Finally, iPAD sends the corresponding business processes and work flows to be completed electronically.

It works much like a digital dashboard, which we introduced you to in Chapter 3. When purchasing agents log onto the iPAD portal in the morning, they receive a customized Web page with announcements, business alerts, analyses, and digital workflows to be completed. The purchasing agents can set out immediately to complete the tasks for the day, without having to spend 70 percent of their time finding, retrieving, and analyzing information. iPAD even customizes the Web page according to the purchasing agent’s native language, something very necessary for a global manufacturer of automobiles with more than 2,000 purchasing agents worldwide.17,18

Questions

1. Volkswagen operates its own proprietary B2B e-marketplace in which its suppliers participate. What are the disadvantages to Volkswagen of not using a generic B2B e-marketplace with even more suppliers? What are the advantages to Volkswagen of developing and using its own proprietary B2B e-marketplace?

2. When Volkswagen needs a new part design, it uses VWsupplygroup.com to get its suppliers involved in the design process early. This creates a tremendous amount of interorganizational collaboration. What are the advantages to the suppliers and to Volkswagen in doing so?

Part 2: case study 2

The Mobile Commerce Explosion

It’s happening right now all around you. Although the “outrageous transformation” has yet to occur, more and more people every day are turning to their smart-phones for shopping convenience and comparison. For a Christmas gift for his girlfriend in 2010, Tri Tang went shopping for a Garmin global positioning system (GPS). He found exactly what he wanted at a Best Buy store for $184.85. But instead of dropping it into his cart and proceeding to the cashier, Tri pulled out his smartphone and typed in the model number. He found the exact same Garmin GPS on Amazon’s Web site for $106.75, with no shipping and no tax.

Tri is part of a growing number of consumers using their smartphones to find the best deals, even when in a store with the product in hand. According to Mike Duke, CEO of Walmart, smartphone-enhanced shopping has ushered in a whole “new era of price transparency.” The “old” traditional model of using advertising to get a consumer in the store no longer works. In that old model, if a retailer got a consumer in the store, it could reasonably assume that the consumer would make the purchase there. Not so anymore. Once consumers find what they want in a store, they’re turning to their smart-phones to compare prices and read product reviews.

According to a Nielsen survey, 38 percent of all U.S. consumers now own a smartphone. In a 90-day period from March through May of 2011, 55 percent of consumers who bought a “wireless” phone purchased a smartphone with all the apps (most of them free) necessary to scan bar codes and compare prices.

According to another survey conducted by IDC Retail Insights, 45 percent of smartphone owners had used them to compare prices while in a retail store. As IDC’s Greg Girard explains it, “The retailer’s advantage has eroded. The four walls of the store have become porous.” To fully comprehend how quickly this transformation is generating speed, consider the findings of IBM. According to Coremetrics, a division of IBM, on Black Friday (the day after Thanksgiving) in 2009, mobile devices accounted for only 0.1 percent of all visits to retailers’ Web sites. In 2010’s Black Friday, that number increased to 5.6 percent, a 50-fold increase.

And it’s not just limited to smartphone-enabled price comparisons. Many smartphone owners are turning to their smartphones for service. According to an Accenture study in 2010, 73 percent of smartphone owners

preferred to use their smartphones for basic assistance over talking to a retail clerk. So, the very notion of “personalized” service is on shaky ground. This used to be a stronghold for brick-and-mortar retailers, claiming that the shopping experience was more meaningful because shoppers were engaged by sales people instead of technology. Now it seems that smartphone-wielding savvy shoppers prefer technology over the personal touch.

Matt Binder was hoping to save some money, just like Tri Tang at the beginning of this case study. But Matt was more than willing to save just a couple of dollars, whereas Tri saved almost $80. Armed with his smartphone and Amazon’s Price Check App, Matt found a 2Gb USB drive at a Best Buy store for $11.99. When he snapped a photo of it, his Price Check App alerted him that Amazon had the same USB drive for $9.99. Matt opted for the cheaper price. Now, $2 may not seem like a lot but Matt didn’t have to go anywhere else to make his cheaper purchase. He did it right there on his phone in the Best Buy store. As Matt explained it, “I wouldn’t drive somewhere else to save $2.” And he didn’t have to, thanks to the mobile commerce explosion.19, 20, 21

Page 154Questions

1. Take a survey in one of your classes. What percentage of students own smartphones? Gather some data regarding how they use their smartphones for shopping. Do they use a smartphone to compare prices? Do they use a smartphone to read product reviews? For what other shopping-related activities do they use their smartphones?

2. How do you think large brick-and-mortar retailers like Best Buy and Walmart can compete in a world quickly moving to smartphone-enhanced shopping? Do you think smartphone-enhanced shopping will outrageously transform brick-and-mortar retail, perhaps putting many retail chains out of business? Why or why not?

Part 3: key terms

1. Business to Business (B2B) e-commerce

2. Business to Consumer (B2C) e-commerce

3. Business to Government (B2G) e-commerce

4. Consumer to Business (C2B) e-commerce

5. Consumer to Consumer (C2C) e-commerce

6. Consumer to Government (C2G) e-commerce

7. Conversion rate

8. Crowdsourcing

9. Demand aggregation

10. Digital wallet

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