E-commerce 2013, 9e (Laudon/Traver)

Chapter 12 B2B E-commerce: Supply Chain Management and Collaborative Commerce

1) The cost of participating in B2B e-commerce systems has fallen significantly.

Answer: TRUE
Diff: 2 Page Ref: 761
AACSB: Reflective Thinking

2) Virtually all firms, both large and small, now use Electronic Data Interchange (EDI) systems.
Answer: FALSE
Diff: 2 Page Ref: 763
AACSB: Reflective Thinking

3) Private industrial networks are the most prevalent form of Internet-based B2B commerce.
Answer: TRUE
Diff: 2 Page Ref: 764
AACSB: Reflective Thinking

4) Regional supply chains provide lower short term costs, but higher, longer term risk protection.
Answer: FALSE
Diff: 2 Page Ref: 774
AACSB: Reflective Thinking

5) Collaborative commerce is primarily concerned with the development of a rich

communications environment.
Answer: TRUE
Diff: 2 Page Ref: 783
AACSB: Reflective Thinking

6) Enterprise systems are corporate-wide systems that relate to various aspects of production
such as finance, human resources, and procurement.
Answer: TRUE
Diff: 2 Page Ref: 771
AACSB: Reflective Thinking

7) MRO goods are also known as indirect goods.

Answer: TRUE
Diff: 2 Page Ref: 788
AACSB: Reflective Thinking

8) E-distributors operate in horizontal markets.

Answer: TRUE
Diff: 2 Page Ref: 788
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9) Exchanges tend to be biased toward the seller even though they are independently owned and
presumably neutral.
Answer: FALSE
Diff: 3 Page Ref: 791
AACSB: Reflective Thinking

10) Exchanges have proven successful in providing additional value-added services that
transform the value chain for the entire industry.
Answer: FALSE
Diff: 2 Page Ref: 794
AACSB: Reflective Thinking

11) The bias of industry consortia is toward large buyers.

Answer: TRUE
Diff: 2 Page Ref: 795
AACSB: Reflective Thinking

12) Private industrial networks typically involve manufacturing and related support industries.
Answer: TRUE
Diff: 1 Page Ref: 797
AACSB: Reflective Thinking

13) Net marketplaces focus on continuous business process coordination between companies
while private industrial networks are primarily transaction-based.
Answer: FALSE
Diff: 2 Page Ref: 798
AACSB: Reflective Thinking

14) Industry consortia are usually owned collectively by the major firms participating in the
consortia, while private industrial networks usually are created by a single sponsoring company.
Answer: TRUE
Diff: 2 Page Ref: 798
AACSB: Reflective Thinking

15) Demand chain visibility is one goal of collaborative commerce.

Answer: TRUE
Diff: 1 Page Ref: 799
AACSB: Reflective Thinking

16) VWGroupSupply.com is an example of an:

A) e-distributor.
B) e-procurement Net marketplace.
C) exchange.
D) industry consortium.
Answer: B
Diff: 2 Page Ref: 757
AACSB: Reflective Thinking
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17) Analysts predict that B2B e-commerce in the United States will grow by 2016 to
approximately:
A) $5.6 billion.
B) $56 billion.
C) $560 billion.
D) $5.6 trillion.
Answer: D
Diff: 2 Page Ref: 761
AACSB: Reflective Thinking

18) Which of the following is not a major trend in B2B e-commerce in 2012-2013?
A) decreased growth of B2B e-commerce due to the recession
B) use of social networks by B2B firms
C) growing use of mobile platform for B2B systems
D) B2B systems move to cloud providers
Answer: A
Diff: 2 Page Ref: 760
AACSB: Reflective Thinking

19) Which of the following is not a benefit of carving up a single, global B2B platform into
product and region-centered systems?
A) lower risk
B) greater adaptability
C) lower complexity
D) lower cost
Answer: D
Diff: 2 Page Ref: 760
AACSB: Reflective Thinking

20) In 2012, the total amount of B2B e-commerce in the United States was approximately:
A) $4.1 billion.
B) $41 billion.
C) $410 billion.
D) $4.1 trillion.
Answer: D
Diff: 2 Page Ref: 761
AACSB: Reflective Thinking

21) Which of the following was the first step in the development of B2B commerce?
A) Electronic Data Interchange (EDI)
B) automated order entry systems
C) digital storefronts
D) private industrial networks
Answer: B
Diff: 2 Page Ref: 762
AACSB: Reflective Thinking
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22) Which of the following terms refers to the total flow of value among firms?
A) total interfirm trade
B) B2B commerce
C) multi-tier exchange
D) liquidity
Answer: A
Diff: 2 Page Ref: 762
AACSB: Reflective Thinking

23) Which of the following is not true about automated order entry systems?
A) Automated order entry systems are typically owned by the suppliers.
B) Automated order entry systems no longer play an important role in B2B commerce.
C) Automated order entry systems show goods only from a single seller.
D) Automated order entry systems reduce the costs of inventory replenishment.
Answer: B
Diff: 2 Page Ref: 763
AACSB: Reflective Thinking

24) None of the following statements about EDI are true except:
A) EDI systems generally serve horizontal markets.
B) EDI systems are seller-side solutions.
C) EDI is a communications standard for sharing business documents.
D) EDI systems no longer play an important role in B2B commerce.
Answer: C
Diff: 2 Page Ref: 763
AACSB: Reflective Thinking

25) Which of the following is not true about B2B electronic storefronts?
A) They are a predecessor of automated order entry systems.
B) They tend to serve horizontal markets.
C) They are seller-side solutions.
D) They are usually considered a type of Net marketplace.
Answer: A
Diff: 1 Page Ref: 763
AACSB: Reflective Thinking

26) Which of the following is another name for a private industrial network?
A) Net marketplace
B) PTX
C) EDI network
D) hub-and-spoke system
Answer: B
Diff: 2 Page Ref: 764
AACSB: Reflective Thinking

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27) All of the following are weaknesses of EDI except:
A) EDI is not well suited for electronic marketplaces.
B) EDI lacks universal standards.
C) EDI does not provide a real-time communication environment.
D) EDI does not scale easily.
Answer: B
Diff: 2 Page Ref: 776-779
AACSB: Reflective Thinking

28) Which of the following is the fastest growing form of online B2B e-commerce?
A) e-distributors
B) exchanges
C) private industrial networks
D) industry consortiums
Answer: C
Diff: 2 Page Ref: 765
AACSB: Reflective Thinking

29) All of the following are potential benefits of B2B e-commerce except:
A) lower administrative costs.
B) lower search costs.
C) lower price transparency.
D) lower transaction costs.
Answer: C
Diff: 2 Page Ref: 766
AACSB: Reflective Thinking

30) What is the first step in the procurement process?

A) negotiate price
B) qualify the seller and its products
C) issue a purchase order
D) search for suppliers
Answer: D
Diff: 2 Page Ref: 769
AACSB: Reflective Thinking

31) The last step in the procurement process is:

A) sending a remittance payment.
B) sending the invoice.
C) shipping the goods.
D) delivering the goods.
Answer: A
Diff: 2 Page Ref: 769
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32) Office supplies are an example of:
A) direct goods.
B) indirect goods.
C) MRO goods.
D) distributed goods.
Answer: B
Diff: 2 Page Ref: 770
AACSB: Analytic Skills

33) The majority of interfirm trade involves:

A) spot purchasing of direct goods.
B) contract purchasing of indirect goods.
C) contract purchasing of direct goods.
D) spot purchasing of indirect goods.
Answer: C
Diff: 2 Page Ref: 770
AACSB: Reflective Thinking

34) Which of the following is a method of inventory cost management that seeks to eliminate
excess inventory?
A) lean production
B) sustainable production
C) just-in-time production
D) supply chain simplification
Answer: C
Diff: 2 Page Ref: 772
AACSB: Reflective Thinking

35) All of the following are major developments in supply chain management except:
A) supply chain simplification.
B) EDI.
C) accountable supply chains.
D) the elimination of legacy computer systems.
Answer: D
Diff: 2 Page Ref: 772
AACSB: Reflective Thinking

36) ________ is a method for ensuring that suppliers precisely deliver ordered parts at a specific
time and to a particular location.
A) Having an adaptive supply chain
B) Tight coupling
C) Supply-chain management
D) Materials requirement planning
Answer: B
Diff: 2 Page Ref: 773
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37) EDI transactions total about ________ percent of all B2B e-commerce in 2011.
A) 10
B) 35
C) 50
D) 75
Answer: B
Diff: 2 Page Ref: 777
AACSB: Reflective Thinking

38) EDI began as a(n) ________ system.

A) document automation
B) document elimination
C) continuous replenishment
D) MRP
Answer: A
Diff: 2 Page Ref: 777
AACSB: Reflective Thinking

39) Most industry groups are moving toward which language for expressing EDI documents and
communications?
A) HTML
B) XML
C) Java
D) SQL
Answer: B
Diff: 1 Page Ref: 778
AACSB: Reflective Thinking

40) A(n) ________ system continuously links the activities of buying, making, and moving
products from suppliers to purchasing firms, as well as integrating order entry systems.
A) EDI
B) ERP
C) CPFR
D) SCM
Answer: D
Diff: 2 Page Ref: 779
AACSB: Reflective Thinking

41) All of the following are true about collaborative commerce systems except:
A) They involve a move from a transaction focus to a relationship focus.
B) They may include both customers and suppliers.
C) They are open, competitive marketplaces.
D) They typically include a central data repository.
Answer: C
Diff: 2 Page Ref: 780-784
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42) Which of the following is not a characteristic of the use of social networks in B2B e-
commerce?
A) It is typically unstructured.
B) It helps develop a more personal relationship between participants in the supply chain.
C) It enables participants to make decisions based on current conditions.
D) They are always private.
Answer: D
Diff: 3 Page Ref: 784
AACSB: Reflective Thinking

43) Which of the following primarily serve horizontal markets?

A) e-distributors and exchanges
B) e-distributors and e-procurement Net marketplaces
C) e-procurement Net marketplaces and industry consortia
D) exchanges and industry consortia
Answer: B
Diff: 2 Page Ref: 787
AACSB: Reflective Thinking

44) Which of the following primarily deal with indirect goods?

A) e-distributors and industry consortia
B) e-distributors and e-procurement Net marketplaces
C) exchanges and industry consortia
D) exchanges and e-procurement Net marketplaces
Answer: B
Diff: 2 Page Ref: 787
AACSB: Reflective Thinking

45) Which of the following primarily deal with direct goods?

A) e-distributors and independent exchanges
B) exchanges and e-procurement Net marketplaces
C) exchanges and industry consortia
D) e-procurement Net marketplaces and industry consortia
Answer: C
Diff: 2 Page Ref: 787
AACSB: Reflective Thinking

46) All of the following are methods of classifying Net marketplaces except:
A) by technology used.
B) by pricing mechanism used.
C) by type of goods sold.
D) by type of purchasing used.
Answer: A
Diff: 2 Page Ref: 786
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47) Which of the following primarily involve long-term sourcing?
A) e-distributors and exchanges
B) e-distributors and industry consortia
C) e-procurement Net marketplaces and exchanges
D) e-procurement Net marketplaces and industry consortia
Answer: D
Diff: 2 Page Ref: 787
AACSB: Reflective Thinking

48) An ________ provides electronic catalogs that represent the products of thousands of direct
manufacturers.
A) e-distributor
B) e-procurement company
C) exchange
D) industry consortium
Answer: A
Diff: 2 Page Ref: 788
AACSB: Reflective Thinking

49) An ________ primarily serves businesses that buy indirect goods on a spot purchasing basis.
A) e-distributor
B) e-procurement company
C) exchange
D) industry consortium
Answer: A
Diff: 2 Page Ref: 788
AACSB: Reflective Thinking

50) All of the following statements about e-distributors are true except:
A) e-distributors make money by charging a mark-up on products they distribute.
B) e-distributors usually operate "private" markets.
C) e-distributors operate in horizontal markets.
D) e-distributor prices are usually fixed.
Answer: B
Diff: 3 Page Ref: 788-789
AACSB: Reflective Thinking

51) An ________ primarily serves businesses that primarily buy indirect goods on a contract
purchasing basis.
A) e-distributor
B) e-procurement Net marketplace
C) exchange
D) industry consortium
Answer: B
Diff: 2 Page Ref: 789
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52) Which of the following is an example of an e-procurement Net marketplace?
A) Exostar
B) Ariba
C) Grainger
D) none of the above
Answer: B
Diff: 2 Page Ref: 790
AACSB: Reflective Thinking

53) An e-procurement Net marketplace is sometimes referred to as a:

A) one-to-one market.
B) one-to-many market.
C) many-to-few market.
D) many-to-many market.
Answer: D
Diff: 2 Page Ref: 789
AACSB: Reflective Thinking

54) An example of an indirect good in the fast-food industry is:

A) food-grade paper.
B) fax paper.
C) beef.
D) sugar.
Answer: B
Diff: 2 Page Ref: 770
AACSB: Analytic Skills

55) An ________ is an independently owned, online marketplace that connects hundreds to

potentially thousands of suppliers and buyers in a dynamic, real-time environment.
A) exchange
B) e-distributor
C) e-procurement company
D) industry consortium
Answer: A
Diff: 2 Page Ref: 790
AACSB: Reflective Thinking

56) An ________ primarily serves businesses that primarily buy direct goods on a spot
purchasing basis.
A) e-distributor
B) e-procurement company
C) exchange
D) industry consortium
Answer: C
Diff: 2 Page Ref: 790-791
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57) Which of the following does not have a primary impact on the liquidity of a market?
A) price transparency
B) number of buyers and sellers in market
C) volume of transactions
D) size of transactions
Answer: A
Diff: 2 Page Ref: 791
AACSB: Reflective Thinking

58) Exchanges have failed primarily because:

A) suppliers have refused to join them.
B) buyers have refused to join them.
C) the existing markets have had too high liquidity.
D) excessive trade value per transaction.
Answer: A
Diff: 1 Page Ref: 791
AACSB: Reflective Thinking

59) An ________ primarily serves businesses that primarily buy direct goods on a contract
purchasing basis.
A) e-distributor
B) e-procurement company
C) exchange
D) industry consortium
Answer: D
Diff: 2 Page Ref: 793
AACSB: Reflective Thinking

60) Industry consortia are sometimes referred to as:

A) many-to-many markets.
B) many-to-few markets.
C) one-to-one markets.
D) one-to-many markets.
Answer: B
Diff: 2 Page Ref: 793
AACSB: Reflective Thinking

61) ________ is another name for transorganizational business processes.

A) Supply chain management
B) Collaborative commerce
C) B2B e-commerce
D) Value chain management
Answer: B
Diff: 2 Page Ref: 797
AACSB: Reflective Thinking

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62) Private industrial networks are direct descendants of:
A) e-procurement Net marketplaces.
B) existing EDI networks.
C) independent exchanges.
D) industry consortia.
Answer: B
Diff: 2 Page Ref: 797
AACSB: Reflective Thinking

63) Which of the following is not an objective of a private industrial network?

A) developing industry-wide response planning to supplement enterprise-wide resource planning
B) creating increasing supply chain visibility
C) achieving closer buyer-supplier relationships
D) obtaining equity participation in the network from other major firms in the industry
Answer: D
Diff: 2 Page Ref: 798
AACSB: Reflective Thinking

64) All of the following are forms of collaboration among businesses except:
A) RFQs.
B) CPFR.
C) demand chain visibility.
D) marketing coordination and product design.
Answer: A
Diff: 2 Page Ref: 802
AACSB: Reflective Thinking

65) Which of the following is not a typical barrier to the implementation of a private industrial
network?
A) It requires participating firms to share sensitive data.
B) It requires the large network owners to give up some of its independence.
C) It requires a significant investment of time and money.
D) It requires a change of mind-set and behavior of employees.
Answer: B
Diff: 2 Page Ref: 802-803
AACSB: Reflective Thinking

66) The topology of EDI systems is often referred to as a(n) ________ system, with the buyers in
the center and the suppliers connected to the center via private dedicated networks.
Answer: hub-and-spoke
Diff: 2 Page Ref: 763
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67) A(n) ________ market is one that provides expertise and products for a specific industry,
such as automobiles.
Answer: vertical
Diff: 1 Page Ref: 763
AACSB: Reflective Thinking

68) A(n) ________ supply chain is one in which the labor conditions in low-wage,
underdeveloped producer countries are visible and morally acceptable to ultimate consumers in
more developed industrial societies.
Answer: accountable
Diff: 1 Page Ref: 774
AACSB: Reflective Thinking

69) The essential characteristic of ________ is that they bring hundreds to thousands of suppliers
into a single Internet-based environment to conduct trade.
Answer: Net marketplaces
Diff: 2 Page Ref: 763
AACSB: Reflective Thinking

70) ________ is a set of production methods that focuses on the elimination of waste throughout
the customer value chain.
Answer: Lean production
Diff: 3 Page Ref: 772
AACSB: Reflective Thinking

71) ________ purchasing involves the purchase of goods based on immediate needs in larger
marketplaces that involve many suppliers.
Answer: Spot
Diff: 2 Page Ref: 770
AACSB: Reflective Thinking

72) ________ purchasing involves long-term written agreements to purchase specified products,
with agreed-upon terms and quality, for an extended period of time.
Answer: Contract
Diff: 2 Page Ref: 770
AACSB: Reflective Thinking

73) ________ systems are generally older computer systems used to manage key business
processes in a firm.
Answer: Legacy, BOM
Diff: 2 Page Ref: 771
AACSB: Reflective Thinking

74) ________ systems are corporate-wide systems that relate to all aspects of production.
Answer: Enterprise, ERP
Diff: 2 Page Ref: 771
AACSB: Reflective Thinking
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75) ________ is defined as the use of digital technologies to permit organizations to work
together to design, develop, build, and manage products through their life cycles.
Answer: Collaborative commerce
Diff: 2 Page Ref: 780
AACSB: Reflective Thinking

76) The four main types of Net marketplaces are e-distributors, e-procurement networks,
exchanges, and ________.
Answer: industry consortia
Diff: 2 Page Ref: 787
AACSB: Reflective Thinking

77) ________ services include automation of a firm's entire procurement process on the buyer
side and automation of the selling business processes on the seller side.
Answer: Value chain management, VCM
Diff: 2 Page Ref: 790
AACSB: Reflective Thinking

78) A(n) ________ supply chain includes a company's secondary and tertiary suppliers.
Answer: multi-tier
Diff: 2 Page Ref: 770
AACSB: Reflective Thinking

79) ________ can be viewed as "extended enterprises" in the sense that they often begin as ERP
systems in a single firm and are then expanded to include the firm's major suppliers.
Answer: Private industrial networks
Diff: 2 Page Ref: 797
AACSB: Reflective Thinking

80) ________ is a call for business to take social and ecological interests, and not just corporate
profits, into account in all their decision-making throughout the firm.
Answer: Sustainable business
Diff: 2 Page Ref: 775
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81) Define and discuss the terms total interfirm trade, B2B commerce, and B2B e-commerce in
the context of the history and significance of B2B e-commerce.
Answer: Before the Internet, business-to-business transactions were referred to as the
procurement process. Today, the procurement process can be thought of as total interfirm trade,
which is the total flow of value among firms. B2B commerce describes all types of computer-
assisted interfirm trade. B2B e-commerce specifically describes that portion of B2B commerce
that uses the Internet to assist firms in buying and selling a variety of goods to each other. The
process of conducting trade among businesses consumes many business resources including the
time spent by employees processing orders, making and approving purchasing decisions,
searching for products, and arranging for their purchase, shipment, receipt, and payment. Across
the economy this amounts to trillions of dollars spent annually on procurement processes. If a
significant portion of this interfirm trade could be automated and parts of the procurement
process assisted by the Internet, millions or even trillions of dollars could be freed up for other
uses resulting in increased productivity and increased national economic wealth.
Diff: 2 Page Ref: 761-762
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82) Identify and describe the major stages in the development of B2B commerce.
Answer: B2B commerce has evolved over a 35-year period through several technology-driven
stages. The major stages in this evolution were the development of automated order entry
systems, electronic data interchange (EDI), digital storefronts, private industrial networks, and
net marketplaces.

Automated order entry systems began in the mid-1970s with the use of telephone modems to
send digital orders to health care products companies. Modems were eventually replaced by
personal computers using private networks in the late 1980s and by Internet workstations
accessing electronic online catalogs in the late 1990s.

By the late 1970s, a new form of computer-to-computer communication called electronic data
interchange (EDI) emerged. EDI is a communications standard for sharing business documents
such as invoices, purchase orders, shipping bills, product stocking numbers (SKUs), and
settlement information among a small number of firms. Virtually all large firms have EDI
systems, and most industry groups have industry standards for defining documents in that
industry.

B2B electronic storefronts emerged in the mid-1990s along with the commercialization of the
Internet. These storefronts are online catalogs of products made available to the public
marketplace by a single supplier.

Net marketplaces emerged in the late 1990s as a natural extension and scaling up of the
electronic storefronts. These marketplaces bring hundreds to thousands of suppliers—each with
electronic catalogs and potentially thousands of purchasing firms—into a single Internet-based
environment to conduct trade.

Private industrial networks also emerged in the late 1990s as natural extensions of EDI systems
and the existing close relationships that developed between large industrial firms and their
suppliers. Private industrial networks (also referred to as private trading exchanges, or PTXs) are
Internet-based communication environments that extend far beyond procurement to encompass
truly collaborative commerce. Private industrial networks permit buyer firms and their principal
suppliers to share product design and development, marketing, inventory, production scheduling,
and unstructured communications. These networks are the most prevalent form of Internet-based
B2B commerce, and this will continue into the foreseeable future.
Diff: 2 Page Ref: 762-764
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83) Define the procurement process. What are the seven basic steps in the procurement process?
Answer: The procurement process refers to the way business firms purchase the goods they need
in order to produce the goods they will ultimately sell to consumers. Firms purchase goods from
a set of suppliers that in turn purchase their inputs from another set of suppliers. These firms are
linked in a series of connected transactions. The supply chain refers to this series of transactions,
which links sets of firms that do business with each other. It includes not only the firms
themselves but also the relationships between them and the processes that connect them. There
are seven steps in the procurement process: searching for suppliers for specific products;
qualifying the sellers and the products they sell; negotiating prices; credit terms, escrow
requirements, quality, and scheduling delivery; issuing purchase orders; sending invoices; goods
are shipped; and the buyer sends a payment. Each step is composed of separate substeps that
must be recorded in the information systems of the buyer, seller, and shipper.
Diff: 3 Page Ref: 769-770
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84) Define and explain supply chain management systems, supply chain simplification, and
collaborative commerce, and the relationship between these concepts.
Answer: Supply chain management systems coordinate and link the activities of suppliers,
shippers, and order entry systems to automate the order entry process from start to finish
including the purchase, production, and moving of a product from a supplier to a purchasing
firm.

Supply chain simplification refers to the reduction of the size of a firm's supply chain. Firms
today generally prefer to work closely with a strategic group of suppliers in order to reduce both
product costs and administrative costs. Long-term contract purchases containing prespecified
product quality requirements and prespecified timing goals have been proven to improve end-
product quality and ensure uninterrupted production. These strategic partnership programs are
essential for just-in-time production models. They often involve joint product development and
design, integration of computer systems, and tight coupling of the production processes of two or
more companies. Tight coupling is a method used to guarantee that suppliers accurately deliver
the ordered parts at a specific time and to a particular location so that the production process is
never interrupted due to a lack of parts.

Supply chain simplification, focusing on strategic partners in the production process, ERP
systems, and continuous inventory replenishment are the foundation for contemporary supply
chain management (SCM) systems. Supply chain management systems continuously link the
activities of buying, making, and moving products from suppliers to purchasing firms, as well as
integrating the demand side of the business equation by including the order entry system in the
process. With an SCM system and continuous replenishment, inventory is eliminated and
production begins only when an order is received.

Collaborative commerce is a direct extension of supply chain management systems and supply
chain simplification. The goal is for organizations to collaboratively design, develop, build, and
manage products throughout their life cycles. The focus has changed from the simplification of
transactions to the relationships between the supply chain participants. Collaborative commerce
fosters the sharing of sensitive internal information between suppliers and purchasers. A rich
communications environment is cultivated so that interfirm sharing of designs, production plans,
inventory levels, and delivery schedules can take place. Strategic partners in a supply chain are
connected for much broader purposes, including potentially the development of shared products.
Diff: 2 Page Ref: 772-773, 781
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85) How are social networks being used in B2B e-commerce?
Answer: Participants in supply chain networks are using social network sites to engage in a
more personal relationship with other participants in the supply chain. The conversations and
sharing of ideas are more unstructured, situational, and personal, and enables more intimate
connections among customers, suppliers, and logistics partners. Participating in social networks
also enables participants to become more aware of and respond to fast moving developments that
effect supply chains, allowing decisions to be made based on current conditions. They also
provide good listening posts for businesses involved in B2B trade, allowing firms to engage
suppliers and customers in conversations about existing products and ideas for new products.
Diff: 3 Page Ref: 784
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86) What are private industrial networks? In what ways can they support collaborative
commerce?
Answer: Private industrial networks are Web-enabled networks developed for the coordination
of transorganizational business processes. These networks can be industry-wide, but often begin
and sometimes focus on the voluntary coordination of a group of supplying firms centered about
a single, very large manufacturing firm. Private industrial networks can be viewed as "extended
enterprises" in the sense that they often begin as ERP systems in a single firm and are then
expanded to include the firm's major suppliers.

The central focus of private industrial networks is to provide an industry-wide global solution to
achieve the highest levels of efficiency. Private industrial networks serve different goals from
Net marketplaces. Private industrial networks focus on continuous business process coordination
between companies and usually focus on a single sponsoring company that "owns" the network,
sets the rules, establishes governance, and invites firms to participate at its sole discretion.
Private industrial networks focus on strategic, direct goods and services. Private industrial
networks can do much more than just serve a supply chain and efficient customer response
system. They can also include other activities of a single large manufacturing firm, including
design of products and engineering diagrams, as well as marketing plans and demand
forecasting.

Collaboration among businesses can take many forms and involve a wide range of activities—
from simple supply chain management to coordinating market feedback to designers at supply
firms. One form of collaboration is industry-wide collaborative resource planning, forecasting,
and replenishment (CPFR), which involves working with network members to forecast demand,
develop production plans, and coordinate shipping, warehousing, and stocking activities to
ensure retail and wholesale shelf space is replenished with just the right amount of goods. If this
goal is achieved, hundreds of millions of dollars of excess inventory and capacity could be
wrung out of an industry. This activity alone is likely to produce the largest benefits and justify
the cost of developing private industrial networks.

A second area of collaboration is demand chain visibility. In the past, it was impossible to know
where excess capacity or supplies existed in the supply and distribution chains. For instance,
retailers might have significantly overstocked shelves, but suppliers and manufacturers might be
building excess capacity or supplies for even more production. These excess inventories would
raise costs for the entire industry and create extraordinary pressures to discount merchandise,
reducing profits for everyone.

A third area of collaboration is marketing coordination and product design. Manufacturers that
use or produce highly engineered parts use private industrial networks to coordinate both their
internal design and marketing activities, as well as related activities of their supply and
distribution chain partners. By involving their suppliers in product design and marketing
initiatives, manufacturing firms can ensure that the parts produced actually fulfill the claims of
marketers. On the reverse flow, feedback from customers can be used by marketers to speak
directly to product designers at the firm and its suppliers and "closed-loop marketing" can
become a reality.
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