Scope and Definition of B2B E-Commerce
Remark 3.10 The main benefit of Theorem 3.9 is to reduce the compu- tational complexity necessary to determine the optimal level of capacity
5. Outlook and Conclusions
This paper presents a survey of the literature pertaining to analytic approaches for B2B e-commerce. The literature is quite recent, and we note that the research has not yet evolved in a coherent manner nor can it provide answers to all of the issues involved with B2B e- commerce. However, as buyers and suppliers engage in Internet-based marketplaces across industries, the ability to assess the implications of such spot markets and to understand the risks as well as the benefits associated with them becomes crucial. The contribution of this chapter lies in taking an idealistic view of such spot markets, where we show that both spot markets and long-term contracts coexist under fairly general
conditions. Knowing that such spot markets can significantly reduce supplier costs, even if the unit price on the spot market is much higher than via the long-term contract, procurement managers should increase their companies’ efforts towards Internet-based procurement and prepare its supply chain for such a change. Capitalizing on the various models described above, these managers can effectively manage the risk of such a move and determine the optimal procurement channel mix.
It is important to recognize that the models described here focused primarily on standardized goods and services. However, if customized products are to be exchanged, which are specifically made and designed for one customer, the spot market could be designed to trade production capacity instead of finished components, as long as the same machines can produce several customized products for potentially different com- panies (possibly requiring a set-up time). The semiconductor industry represents an example where it is common practice to negotiate supplier contracts based on wafer starts per week, i.e., in production capacity.
Quality and delivery performance become more important in such a set- ting, since the manufacturer is highly dependent on the supplier’s ability to deliver high quality products on time. However, as more and more Internet-based marketplaces offer quality verification on both the po- tential buyers and sellers, the main decision-making criteria will be the price of the good offered.
We conclude this chapter by noting a number of specific areas for fu- ture research, some of which we already mentioned in our list of B2B market characteristics. Although we made simplifying assumptions for the sake of exposition in this chapter, the papers by Araman et al.
(2000a) and Aramant et al. (2000b) address some of the issues listed in the section above, e.g., quality of supply. Furthermore, a forthcoming paper by Kleinknecht et al. (2001) considers portfolios of supply con- tracts and shows that a manufacturer prefers to access multiple long term suppliers (supply contracts) in addition to the spot market under very realistic conditions. However, despite these recent efforts, the fol- lowing topics in the discussion of B2B e-commerce have not been (fully) captured by the research literature, and we believe these are very signif- icant research areas in the near future.
Inventory Levels
Although it is widely expected that B2B e-commerce technologies, and spot markets in particular, will lead to a better utilization of inventories, a model quantifying the extent of improvements is still missing. Existing papers on the benefits of information sharing and the bullwhip effect will
have to be re-defined to account for the additional procurement and sales channel through internet-based spot markets.
Options and Futures
Similar to financial markets or to exchanges in the utility industry, derivatives for the procurement of components and services would be a valuable tool to hedge against uncertainty for both buyer and seller.
One of the key differences with respect to financial instruments is that the (perceived) value of contracts and B2B spot markets depends on the demand distribution of the buyer, as well as how mission-critical the component is to the buyer - information which may only be known by the buyer himself (if at all). This raises the issue of what the correct/fair price for a component or unit of production capacity should be and makes the use of the traditional replication argument in the pricing of options and futures questionable.
Incentive Issues
Although we were able to obtain some preliminary results regarding the existence of a Nash equilibrium between buyers and sellers under the co-existence of spot markets and long-term contracts, the overall economics of B2B exchanges, including the role of suppliers, is still un- clear. Also, at a more operational level, the creation of spot markets raises the issue of how existing (distribution) channels will react to this new channel. Dynamic game models can be used to model these envi- ronments.
Collaborative Games
In principle, the aggregation of demand or supply can lead to signif- icant benefits for the parties involved. Academic models could study the underlying dynamics and quantify the economics for the individual players.
Fairness Issue
As stated above, the question of fairness in B2B exchanges represents a major challenge for B2B e-commerce. By the same token, it is not clear how the benefits due to exchanges, which are only the result of the interaction of several players, should be shared.
Multi-criteria Decision Making
It is apparent that the corporate decision-makers are reluctant to em- brace Internet-based marketplaces even if they offer lower procurement
prices than established channels. Therefore, analytical models trading off several factors such as lead-time performance, quality of supply, and unit price, will be of great value to practitioners and will be part of our future work.
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