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Chapter 7: Business-to-Business (B2B) and Supply Chain Management (SG AND…
Chapter 7: Business-to-Business (B2B) and Supply Chain Management (SG AND Chaffey’s BOOK)
What is B2B e-Business?
Business-to-Business (B2B) e-business refers to the electronic exchange of goods, services, and information between organisations, rather than between firms and final consumers.
examples:
Manufacturers buying components
Retailers procuring inventory
Firms outsourcing logistics, IT, or services
Chaffey’s perspective
Chaffey emphasises that B2B is less about selling and more about integration:
Process integration
Information sharing
Relationship management
Supply chain coordination
Key insight
B2B e-business is not primarily a marketing activity — it is an organisational and economic coordination mechanism.
Two Core B2B Strategies Enabled by ICT
A. Applying ICT to Existing Relationships
ICT supports pre-existing buyer–supplier relationships
Goal: reduce transaction costs (search, contracting, control)
Results:
Faster transactions
Higher volumes
Increased profitability
Example:
Using EDI or ERP to automate ordering with existing suppliers
B. Creating New Marketplaces
ICT enables
new economic relationships
Transactions that were previously impossible become feasible
ICT creates
electronic marketplaces
Chaffey adds:
These marketplaces rely on:
Information richness
Global connectivity
Lower coordination costs
Why B2B Became So Important
Transaction Cost Theory
B2B e-business expands because ICT:
Reduces search costs
Reduces coordination time
Reduces paperwork
Enables global reach
But:
Power asymmetries can still distort markets
Dominant buyers or suppliers may use ICT strategically
This explains why
some B2B marketplaces failed
Supply Chain Management (SCM)
A supply chain is the flow of materials, goods, services, and information from:
Raw material suppliers (upstream)
→ supplier
→ manufacturers
→ distributors
→ retailers
→ final customers (downstream)
Supply Chain Management (SCM)
SCM = efficient management of materials and information across the entire chain
Key idea:
Firms do not compete alone —
supply chains compete against supply chains
(Chaffey)
Why SCM Became Critical
Consumers expect:
Low prices
High availability
Fast delivery
This creates pressure on:
Logistics
Inventory
Coordination
Forecasting
Key SCM Processes
All are information-sensitive:
Demand forecasting
Production planning
Inventory management
Distribution management
Order processing
Purchasing
Partner communication
Without ICT, these processes fragment → inefficiency
B2B Marketplace Structures
Supplier-Oriented Marketplaces
Suppliers invest in ICT
Goal:
Make buying easier
Reduce buyers’ search costs
Increase sales volume
Examples:
Cisco, Dell
Power effect:
Benefits suppliers
Reinforces seller control
Buyer-Oriented Marketplaces
Large buyers invest in procurement platforms
Goal:
Reduce dependency on suppliers
Increase competition
Lower prices
Key condition:
Only firms with large procurement volumes can afford this
Power effect:
Shifts power to buyers
Pressures supplier margins
Intermediary-Oriented Marketplaces
Neutral third party runs platform
Buyers & sellers do not bear infrastructure costs
Income for intermediary via platform dependency
Example:
Alibaba
Why many failed (SG + Chaffey):
Lack of trust
Failure to reach critical mass
Dominant firms preferred private platforms
Key Attributes of E-Marketplaces
Bias
Biased → favours buyer or seller
Neutral → favours neither
Aggregation vs Matching
Aggregation
One-stop shop
Fixed or standardised prices
Low negotiation
Example: Amazon
Matching
Dynamic price discovery
Negotiation, bidding, auctions
Example: online auctions
Problems of Supply Chain Management
Conflicting Objectives
Flexibility vs inventory
Reliability vs efficiency
Speed vs cost
Holding inventory:
Improves reliability
Increases cost
Air transport:
Improves speed
Increases cost
SCM is about trade-offs, not optimisation of one variable
Common SCM Problems
Demand uncertainty
Poor coordination
Slow response times
Excess inventory (“just in case”)
Shrinkage (loss, theft, waste)
High costs
Information & Uncertainty
Uncertainty increases transaction costs
If demand and supply were perfectly predictable:
SCM would be a one-time optimisation problem
Reality:
Demand fluctuates
Supply is disrupted
Forecasts are imperfect
Bullwhip Effect (SG example)
Small changes in consumer demand
Amplified upstream
Results in:
Overproduction
Excess inventory
Inefficiency
Causes:
Forecast optimism
Fear of shortages
Batch ordering
Poor information sharing
Supply Chain Types (Lean vs Agile)
Lean (Efficient) Supply Chains
Low demand uncertainty
Low supply uncertainty
Focus on cost reduction
Minimal waste
Risk:
Fragile during disruptions
Responsive / Agile Supply Chains
High demand uncertainty
Flexible and fast response
Higher costs
Example: Zara
Risk-Hedging Supply Chains
Supply uncertainty
Shared inventory pools
Agile Supply Chains
Both supply & demand uncertain
Combine responsiveness + risk management
Chopra & Sodhi / Simchi-Levi
Excessive leanness increases vulnerability
Resilience and adaptability are required
Supply Chain Integration: Value Chains → Value Networks
Value Chain (Porter)
Linear
Sequential value addition
Internal + external activities
Value Networks (Chaffey)
Network of collaborating firms
Enabled by ICT
Dynamic, modifiable relationships
Real-time information sharing
Supply chains increasingly act as
virtual organisations
Technological Integration
EDI
Standardised electronic data exchange
Improves speed, accuracy, global coordination
Problems:
Cost
Power imbalance
Control issues
ERP Systems
Integrate internal functions
Connected across firms via EDI/extranets
Example: Cisco
RFID & IoT
Item-level tracking
Inventory visibility
Theft reduction
Recall efficiency
Costly but powerful
Organisational Integration Strategies
Vendor-Managed Inventory (VMI)
Supplier manages retailer inventory
Benefits:
Reduced inventory
Faster replenishment
Risks:
Loss of autonomy
Supplier dependency
Just-in-Time (JIT)
Produce/deliver only when needed
Cost savings
High vulnerability to disruptions
Push vs Pull Models
Push → producer-driven
Pull → customer-driven
Third-Party Logistics (3PL / 4PL)
Advantages:
Focus on core competencies
Economies of scale
Technology access
Disadvantages:
Loss of control
Overdependence
Contract risks