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Chapter 12 Test Bank 1. T/F Private industrial networks are the largest form of B2B e-commerce. Answer: True (see page 674) 2. T/F EDI systems are seller-side solutions. Answer: False (see page 655) 3. T/F Net marketplaces are growing at a faster rate than private industrial networks. Answer: True (see pages 657-658) 4. T/F E-distributors typically operate in vertical markets. Answer: False (see page 678) 5. T/F Exchanges tend to be biased toward the seller even though they are independently owned and presumably neutral. Answer: False (see page 688) 6. T/F Industry consortia are typically buyer-biased. Answer: True (see page 699) 7. T/F Net marketplaces focus on continuous business process coordination between companies while private industrial networks are primarily transaction-based. Answer: False (see page 704) 8. T/F 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 (see page 704) 9. T/F Demand chain visibility is an element of collaborative commerce. Answer: True (see page 707) 10. T/F The term B2B commerce refers to all types of computer-enabled inter-firm trade. Answer: True (see page 654) 11. Covinst is an example of an: (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (d) (see page 651, 676) 12. An ________ provides electronic catalogs that represent the products of thousands of direct manufacturers (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (a) (see page 677) 13. An ____________ is an independently owned intermediary connecting hundreds of online suppliers offering millions of maintenance and repair products to business firms who pay fees to join the market. (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (b) (see page 678) 14. An ______ is an independently owned online marketplace that connects hundreds of suppliers to potentially thousands of buyers in a dynamic, real-time environment. (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (c) (see page 687) 15. Which of the following was the first step in the development of B2B commerce? (a) EDI (b) Automated order entry systems (c) Electronic storefronts (d) Private industrial networks Answer: (b) (see page 654) 16. In 2001, all forms of B2B commerce generated approximately $____ in revenues (a) $12.1 trillion (b) $11.6 trillion (c) $466 billion (d) $466 million Answer: (c) (see page 657) 17. The greatest increase in B2B e-commerce is expected to occur in the: (a) chemicals industry (b) metals and mining industry (c) motor vehicles and parts industry (d) computer and telecommunications equipment industry Answer: (d) (see page 659) 18. Sheet metal purchased by an automobile manufacture for auto body production pursuant to a long-term written agreement is an example of: (a) direct goods (b) indirect goods (c) MRO goods (d) spot purchasing Answer: (a) (see page 661) 19. A _________ continuously links the activities of buying, making and moving products from suppliers to purchasing firms, as well as order entry systems. (a) MRP system (b) ERP system (c) VCM system (d) SCM system Answer: (d) (see page 668) 20. An e-procurement net marketplace is sometimes referred to as a/an: (a) one-to-many market (b) many-to-many market (c) many-to-few market (d) one-to-one market Answer: (b) (see page 679) 21. The market mechanism most commonly used by industrial consortia is: (a) auctions (b) RFPs/RFQs (c) exchanges (d) catalog aggregation Answer: (d) (see page 699) 22. ________ is another name for trans-organizational business processes. (a) supply chain management (b) collaborative commerce (c) B2B e-commerce (d) value chain management Answer: (b) (see page 701) 23. All of the following statements about EDI are true except: (a) EDI is a communications standard for sharing business documents (b) Virtually all large firms have EDI systems (c) EDI systems generally serve horizontal markets (d) EDI systems are owned by buyers. Answer: (c) (see page 655) 24. The second step in the procurement process is to: (a) negotiate price, credit terms, etc. (b) qualify the seller and its products (c) issue a purchase order (d) ship the goods Answer: (b) (see pages 660-661) 25. The majority of inter-firm 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: (b) (see page 661) 26. The key players in the procurement process are the: (a) adjusters and investigators (b) administrative personnel (c) material recording and scheduling personnel (d) purchasing managers Answer: (d) (see page 661) 27. All of the following are major developments in supply chain management except: (a) supply chain simplification (b) EDI (c) collaborative commerce (d) materials requirement planning Answer: (d) (see page 664) 28. All of the following are reasons why the demand and supply chain management system that i2 installed for Nike failed except: (a) Nike choose a “Big Bang” conversion process (b) Too many senior managers left the project during the implementation period (c) The system was not set up to handle a global supply and distribution network (d) Nike management decided not to follow a standard implementation of the i2 Technologies supply chain template Answer: (c) (see pages 670-671) 29. An exchange is sometimes referred to as a: (a) one-to-many market (b) many-to-many market (c) many-to-few market (d) one-to-one market Answer: (c) (see page 688) 30. FreeMarkets is an example of an: (a) exchange (b) e-procurement company (c) e-distributor (d) industry consortia Answer: (a) (see page 690) 31. Siemens wanted its system of have all of the following characteristics except: (a) global reach (b) integration with legacy systems (c) Web-based search engine (d) localized control of purchases Answer: (d) (see page 712) 32. Which firm provided the software upon which click2procure is based? (a) Ariba (b) CommerceOne (c) FreeMarkets (d) i2 Technologies Answer: (b) (see page 711) 33. 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 a significant investment of time and money (c) It requires a change of mind-set and behavior of employees (d) It requires the network owner to give up some of its independence Answer: (d) (see page 708) 34. Nistevo is an example of a/an: (a) exchange (b) industry consortia (c) trans-industry private industrial network (d) industry-wide private industrial network Answer: (c) (see page 710) 35. All of the following are forms of collaboration among businesses except: (a) CPRF (b) demand chain visibility (c) supply chain visibility (d) RFQs Answer: (d) (see page705) 36. Grainger.com is an example of an: (a) e-procurement company (b) e-distributor (c) exchange (d) industry consortia Answer: (b) (see page 678) 37. 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) (see page 697) 38. By 2006, analysts predict that all forms of B2B commerce will grow to approximately: (a) $16 trillion (b) $10.5 trillion (c) $5.4 trillion (d) $3.5 trillion Answer: (c) (see page 657) 39. 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) (see pages 658-659) 40. EDI began as a/an _________ system: (a) document elimination (b) document automation (c) continuous replenishment (d) HTML-based Answer: (b) (see page 665) 41. A/an __________ primarily serves businesses that primarily buy indirect goods on a spot purchasing basis. (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (a) (see page 676) 42. A/an _________ primarily serves businesses that primarily buy indirect goods on a contract purchasing basis (a) e-distributor (b) e-procurement company (c) exchange (d) industry consortia Answer: (b) (see page 676) 43. A/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 consortia Answer: (c) (see page 676) 44. A/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 consortia Answer: (d) (see page 676) 45. The most common reason given by purchasing agents as to why they do not use exchanges is that: (a) they are too expensive (b) they are too confusing to use (c) their traditional suppliers are not part of the exchange (d) they are too biased toward the sellers Answer: (c) (see page 689) 46. Define and discuss the terms total inter-firm trade, B2B commerce and B2B e- commerce in the context of the history and scope of B2B e-commerce. Discuss the evolution of B2B commerce including automated order entry systems, EDI systems, and B2B electronic storefronts. Before the Internet, business-to-business transactions were referred to as the procurement process. Today, the procurement process can be thought of as total inter-firm trade, which is the total flow of value among firms. B2B commerce describes all types of computer assisted inter-firm 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 inter-firm 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. The evolution of B2B e-commerce began in the 1970s with the development of automated order entry systems which used the telephone to send digital orders to companies. Telephone modems were placed in the offices of the customers for a particular business. This enabled procurement managers to directly access the firm’s inventory database to automatically reorder products. This early technology was replaced by personal computers using private networks in the late 1980s, and in the late 1990s by Internet workstations accessing electronic online catalogs. Automated order entry systems continue to play an important role in B2B e-commerce today. Electronic storefronts are a natural descendent of automated order entry systems. They display online catalogs from a single vendor containing the company’s products and prices. Owned by the suppliers, these are seller-side solutions because they display only the products offered by a single supplier. Another precursor of today’s B2B systems is EDI (electronic data interchange) which developed in the late 1970s as a communications standard for sharing various procurement documents including invoices, purchase orders, shipping bills, product stocking numbers (SKU’s) and settlement information for an industry. It was developed to reduce the costs, delays, and errors inherent in the manual exchange of documents. Over the years, EDI evolved from this focus on document automation to a system for document elimination, entirely replacing purchase orders, order fulfillment notices, and shipping notices with production schedules and inventory balances. Suppliers were sent monthly production requirements and precise delivery schedules so that orders would be filled continuously. In the next developmental stage, suppliers were given access to parts of the purchasing firm’s production and delivery schedules and under long-term contracts were required to meet those schedules. This continuous access model resulted in the automation of production, logistics, and many financial processes. Today, EDI is a general enabling technology that provides for the exchange of critical business information that supports a wide-variety of business processes. It is directly involved in nearly half of the trade between firms and has been particularly important in the development of B2B e-commerce. 47. Define the procurement process. What are the seven basic steps in the procurement process? Define and explain the supply chain, supply chain management systems, supply chain simplification, and collaborative commerce. 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 who 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. The term multi-tier supply chain is used to describe the complex series of transactions that exists between a single firm with multiple primary suppliers, the secondary suppliers who do business with those primary suppliers, and the tertiary suppliers who do business with the secondary suppliers. In fact, large Fortune 1000 firms have thousands of suppliers who in turn have thousands of smaller suppliers. 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, and quality requirements, scheduling delivery, issuing purchase orders, sending invoices, and shipping the product. Each step is composed of separate sub steps which must be recorded in the information systems of the buyer, seller and shipper. 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. It focuses on strategic partners in the production process to link these activities and coordinate continuous inventory replenishment. In this way excess inventory can be eliminated and production can begin when an order is received. 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 pre-specified product quality requirements and pre-specified 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. 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 inter-firm 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. 48. What is a Net marketplace? What are the four types of Net marketplaces and how are they classified? Explain the difference between a horizontal and a vertical market and include this dimension in your definition of each type of Net marketplace. What type of bias does each Net marketplace have? Net marketplaces, which are also sometimes referred to as exchanges or hubs, assemble hundreds of sellers and and potentially thousands of buyers in a single digital marketplace operated over the Internet. They are transaction-based and can support many-to-many, many-to-few as well as one-to-many relationships. They can be owned by either the buyer or the seller or they can operate as independent intermediaries between the buyer and seller. There are four “pure” types of B2B Net marketplaces, E-distributors, E-procurement companies, exchanges, and industry consortia. A Net marketplace classification system that focuses on the central business functionality of a Net marketplace can be constructed using the intersection in a grid of the two different types of procurements and the two different methods of purchasing goods. A third dimension, horizontal versus vertical markets, also helps to distinguish the type of net market. Horizontal markets serve many different industries, while vertical markets provide expertise and products for a specific industry. E-distributors are independently owned intermediaries that offer industrial customers a single source from which to make spot purchases of indirect or MRO (maintenance, repair, and operations) goods. E-distributors operate in a horizontal market that serves many different industries with products from many different suppliers. The prices in an E-distributor Net marketplace are generally fixed, but large customers receive discounts and other incentives to purchase. The primary benefits offered to industrial customers are lower search costs, wide selection, rapid delivery, and low prices. E-procurement companies are independently owned intermediaries connecting hundreds of online suppliers offering millions of MRO goods to business firms who pay a fee to join the market. E-procurement companies operate in a horizontal market in which long-term contractual purchasing agreements are used to buy indirect goods. E-procurement Net marketplaces are many-to-many-markets in which an independent third party is supposed to represent both buyers and the sellers. They tend to be buyer biased markets though because they include catalogs from many competing suppliers and e-distributors. Exchanges are independently owned online marketplaces that connect hundreds of suppliers to potentially thousands of buyers in a dynamic real- time environment. An exchange is typically a vertical marketplace in which spot purchases can be made for direct inputs (both goods and services). Exchanges make money by charging a commission on each transaction although the pricing model can include online negotiation, auction, RFQ (request for quote) or fixed buy and sell prices. Exchanges tend to be buyer biased markets even though they are supposed to be neutral since they are independently owned. Suppliers are disadvantaged because they are put in direct price competition with similar suppliers. Industry consortia are industry owned vertical markets where long-term contractual purchases of direct inputs can be made from a limited set of invited participants. Consortia serve to reduce supply chain inefficiencies by unifying the supply chain for an industry through a common network and computing platform. They developed partly in reaction to the earlier development of independently owned exchanges which were viewed by large industries as interlopers who would not directly serve their needs. Industry consortia are profitable because they charge the large buyer firms transaction and subscription fees. They can and often do force the suppliers to use the consortia’s network and proprietary software as a condition of selling to industry members and are clearly biased towards the large buyers who control the access to the marketplace. In the real world, Net markets can be found that overlap several of the classifications. Other defining characteristics include the pricing mechanism of the marketplace, auction, bid/ask, negotiated price, or fixed price, and whether it is a public market that any firm can enter or a private, by invitation only market. 49. What is a private industrial network? What role can private industrial networks play in transforming the supply chain? How can they support collaborative commerce? Private industrial networks are Web-enabled networks for the coordination of trans- organizational business processes. They bring together a small number of strategic business partners who collaborate with one another to develop highly efficient supply chains and to satisfy customer demand for a product. They are by far the largest form of B2B commerce, presently comprising 93% of the total computer assisted inter-firm trade. These networks range in scope from a single firm to an entire industry. For the most part, these networks originate in and closely involve the manufacturing and related support industries, but they could just as easily apply to some services. Although the central purpose of a private network is to provide industry-wide global solutions to achieve the highest levels of efficiency, they generally start with a single sponsoring company that “owns” the network. This differentiates private industrial networks from industry consortia which are usually owned collectively by major firms through equity participation. They can be viewed as extended enterprises because they often begin as the enterprise resource planning systems in a single firm and then are extended to include the firm’s major suppliers. The specific goals of a private industrial network are to develop efficient purchasing and selling processes industry-wide and to develop industry-wide resource planning to supplement enterprise-wide resource planning. Other objectives include increasing supply chain visibility, achieving closer buyer-supplier relationships, globalization, and reducing industry risk by preventing imbalances in supply and demand. These goals are different from Net marketplaces because Net marketplaces are primarily transaction-oriented, whereas private industrial networks are focused on business processes. Private industrial networks are transforming the supply chain by focusing on continuous business process coordination between companies. This coordination includes much more than just transaction support and supply chain management. Product design, demand forecasting, asset management, and sales and marketing plans can all be coordinated among network members. Collaboration among businesses can take many forms and involve a wide range of activities. One form of collaboration used by private networks is industry-wide CPFR (collaborative resource planning, forecasting, and replenishment). CPFR involves working with network members to forecast demand, develop production plans, and coordinate shipping, warehousing, and stocking activities. The goal is to ensure that retail and wholesale shelf space is precisely maintained. Another goal of collaboration is to increase supply and distribution chain visibility. In the past it was impossible to know exactly where excess capacity existed in a supply or distribution chain. Increased visibility can eliminate excess inventories by halting the production of overstocked goods. This can raise the profit margins for all network members because products will no longer need to be discounted in order to move excess inventory off the shelves. Yet another goal can be marketing and product design collaboration. This is used to involve a firm’s suppliers in product design and marketing activities as well as in the related activities of their supply and distribution chain partners. This can ensure that the parts used to build a product live up to the claims of the marketers. Collaborative commerce applications used in a private industrial network can also make possible closed loop marketing in which customer feedback will directly impact product design. 50. Discuss the major trends in the development of Net marketplaces. What are the benefits they offer to individual firms and to industries? How could Net marketplaces possibly reduce competition and drive prices up? In the E-commerce I period, independent exchanges were the prototype Internet based market place and several thousand of them were created; however, most of them did not succeed. Many exchanges failed because they did not attract enough players to achieve liquidity. They did not have enough buyers and sellers in the market, and neither the transaction volume nor the size of the transactions was large enough to support their business model. Industry consortia sprang up in 1999 and 2000 because large firms wanted to counter the earlier development of the independently owned exchanges which were not under their control and would not directly serve their needs. Industry consortia are profitable because they charge the large buyer firms transaction and subscription fees, but the rationalization of the procurement process, the competition among the vendors, and the closer relationship with the vendors are benefits that more than offset the costs of membership to the firms. The failure of the early exchanges is one reason Net marketplaces are changing so rapidly. Participants have come to realize that the real value of B2B e-commerce will only be achieved when it succeeds in changing the entire procurement system, the supply chain, and the process of collaboration among firms. Pure Net marketplace exchanges are moving away from the simple electronic marketplace form towards this collaborative model that attempts to radically alter the procurement process. E-distributors and exchanges are shifting towards business models that include more sustained, higher value-added relationships with buyer firms by providing e-procurement services and participating in industry consortia. Net marketplaces are also moving away from simple transactions involving spot purchases and towards longer-term contractual relationships for procuring both indirect and direct goods. Net marketplaces have great promise for reducing supply-chain expenses and improving business efficiency at the participating companies and in entire industries. They can reduce administrative costs and the search costs associated with connecting buyers and sellers. Joint purchasing can allow multiple small purchasers to take advantage of bulk discounts that might not otherwise be available to them. However, Net marketplaces also have the potential to reduce competition and drive prices up. Net marketplaces could pose antitrust threats due to information sharing, joint purchasing, exclusionary practices, and reducing competition from other Net marketplaces. Information sharing can pose a threat in concentrated markets where they might lead to tacit collusion, price “signaling” or even explicit price fixing. Joint purchasing could also potentially cause problems. Purchasing groups can gain monopsony power giving them the ability to drive the price of a product below competitive levels. Net marketplaces owned by large industry players could also discriminate against non-owners by excluding them from participation or by granting certain benefits, rebates for example, to owner participants that are not available to non-owner participants. Excluding a competitor is a violation of antitrust law if it results in harm to competition and if it is not reasonably necessary for the attainment of efficiencies for the Net marketplace. A large Net marketplace could also exclude other market-makers from entering the market because the switching costs for participants would be too high and the network effects would be too powerful to overcome. Competition from other Net marketplaces could be reduced if membership requirements, such as minimum purchase requirements or restrictions on investments in competing Net marketplaces, were imposed such that they undermined the ability of rivals to compete. Likewise, if excessive rebates tied to the number of or the size of purchases, were used to deliberately reduce competition, it could be considered a violation. Although these might be necessary business practices to ensure profitability, they will not be tolerated by the courts if the consequences are harmful to competitors, competition in general, and in the final analysis, to consumers who are forced to pay higher prices.
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