Supply Chain Coordination in Buyer Centric

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ARTICLE IN PRESS

Int. J. Production Economics 92 (2004) 113–124

Supply chain coordination in buyer centric B2B electronic markets Charles X. Wanga,*, Michel Benarochb
a

School of Management, State University of New York at Buffalo, Buffalo, NY 14260, USA b School of Management, Syracuse University, Syracuse, NY 13210, USA Received 1 September 2002; accepted 1 September 2003

Abstract While over the past 4 years more than 1000 B2B electronic markets that cater to a wide spectrum of industries have been established, many of them have already disappeared. This reality can be explained by several factors, two of which we think are important: the transaction fees that owners of these markets charge participants, and the supply chain coordination mechanisms that these markets do (or actually do not) facilitate. In this paper, we take the viewpoint of supply chain coordination to analyze the decision of suppliers and buyers to do or not do business in electronic markets while selling perishable products with random demand. r 2003 Elsevier B.V. All rights reserved. Keywords: Electronic markets; Newsvendor model; Supply chain contracts; Returns policy

1. Introduction Recently we have seen the fast development of Business-to-Business (B2B) e-commerce. Jupiter Communications estimates that by 2005, the expected online B2B transactions of goods in the US would amount to $6.3 trillion out of a total of $15.1 trillion. Internet-based electronic markets (emarkets) play a particularly important role in B2B e-commerce; they are expected to produce an online transaction volume of over $6 trillion by 2004 (Bermudex et al., 2000). Currently there are over 1000 established B2B e-markets catering to a wide spectrum of industries such as aerospace, *Corresponding author. Tel.: +1-716-645-3412; fax: +1716-645-6117. E-mail address: cxwang@buffalo.edu (C.X. Wang).

agriculture, apparel, automotive parts, energy and chemicals, high technology, food and beverages, logistics, office supply, services, utility, soft goods, and raw materials. Interestingly, however, many of the e-markets that were established over the past few years have disappeared. This reality may be explained by several factors. For example, Porter (2001) points out that Internet technology has some negative effects on the industry structure: Internet technology tends to negatively bolster buyer bargaining power, reduce barriers to entry for new competitors, creates new substitute products or services, intensify the rivalry among competitors, and encourages destructive price competition. Wise and Morrison (2000) also identify three flaws in the B2B e-market: competitive bidding among sellers allows buyers to get the lowest possible prices; B2B e-market delivers

0925-5273/$ - see front matter r 2003 Elsevier B.V. All rights reserved. doi:10.1016/j.ijpe.2003.09.016

ARTICLE IN PRESS
114 C.X. Wang, M. Benaroch / Int. J. Production Economics 92 (2004) 113–124

little benefit to sellers; and the business model of most B2B e-markets are, at best, half-baked. In this paper, we attempt to identify two other important factors that may help to explain the reality of current B2B e-markets: the kind of transaction fees that e-market owners charge participants, and the kind of supply chain coordination mechanisms that B2B e-markets do (or actually do not) facilitate. In traditional markets, transactions between suppliers and buyers begin with a buyer looking for goods or a supplier seeking potential buyers. Both supplier and buyer will incur some kind of transaction costs in traditional markets. One part of the transaction costs is incurred prior to the actual transaction. It includes expenses for searching, advertising, participating in trade shows, rewarding brokers, dealers or sales force, etc. Another part of the transaction costs is incurred after a contract has been signed. It includes the expenses associated with ordering, billing, making transportation arrangements,...
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