Electronic Marketplaces in Supply Chains

1. Electronic Marketplaces in Supply Chains ‘Kamesh’ Kameshwaran S kameshn(at)csa.iisc.ernet.in http://people.csa.iisc.ernet.in/kameshn/ Dept. of CSA, IISc Foundations of Global Supply Chain Management Sept 27, 2003 Bangalore

2. Objectives • To bring out and understand the important role of e-marketplaces in SCM • To understand critical design and implementation issues of e-marketplaces

3. Categories • C2C: Consumer to consumer marketplaces allow buyers and sellers to trade personal goods (baazee) • B2C: Business to consumer sites sell products to online shoppers (amazon, fabmart) • B2B: Business to business marketplaces automate supply chains and link systems with business partners (this will be our focus)

4. SCM and e-Marketplaces • e-Marketplaces in SCM: Why? • shrinking product lifecycles • mass customization • massive scalability • faster and more flexible fulfillment • to attract and serve larger customer bases • The above cannot be handled by the traditional SCM initiatives alone, such as strategic sourcing, contract manufacturing and joint product development

5. SCM and e-Marketplaces • e-Marketplaces in SCM: Where? • Procurement and Selling: plasticsnet, paperexchange, indiamarkets • Subcontracting and Outsourcing of business processes like manufacturing and assembling (allocation.net, inventorydepot) • Logistics: LeanLogistics, infreight, intermodalex, nte, net4cargo, cargoreservations

6. e-Marketplaces • Paper Products: clickpaper, eprintingx, paper2print, papersite, paperspace • Automobiles: autowebex, autotomorrow, edealr, covisint • Food Items: foodtrader, foodenterprise, tomatrade, globalfoodexchange, beverageindustry, candycommerce, terminalmarkets, stctrading, efoods • Energy: cetrade, oz-coal, trade-ranger, houstonstreet, amdax, watt-ex, energywindow, gsn-trade • Agriculture: xsag, ForestOne, farms, acoop, liquiorice, greentrac, theseam, flowergrower, agroinfo2000, florastream • Industrial: worldmetal, rockanddirt, metalsite, primeadvantage, thesteelhub, ironplanet, rollingcost

7. SCM of e-Marketplaces • SCM of e-Marketplaces • Amazon.com delivered more than 789,000 copies of Harry Potter and the Order of the Phoenix across US via the U.S. Postal Service and FedEx Corp. as soon as the book was released • Weight of each book: 1.27 Kg. More than 1100 tons of processing, packaging and distribution. • Dynamic formation of supply chains during festivals and new product releases • Our focus will be on the e-Marketplaces of SC

8. Taxonomony • Vertical: Markets suited to specific industries like chemical or steel • Horizontal: These are region-, functional- or process-oriented. Usually for indirect materials like office equipment or spare parts • Private: One-to-many markets operated and owned by a single company to support commercial interactions with its own known traders • Public: Many-to-many markets (many sellers and many buyers)

9. Categories of B2B • Independent: Operated by a third party who is neither a seller or buyer. It is open for all buyers and sellers of particular industry or region (chemconnect, phonetrade) • Sales-oriented: Operated by a group of companies for efficient sales to a large # of buyers (toolstore, findmro) • Purchase-oriented: Operated by a group of buyers in order to obtain an efficient purchasing process (covisint, transora)

10. Business Models • e-catalogues: Catalogue of products, usually fixed price • Market mechanisms: (Dynamic pricing) • Auctions (one seller, many buyers) • Reverse auctions (one buyer, many sellers) • Exchanges (many buyers, many sellers)

11. Design of Markets • Primary functions of markets • matching buyers to sellers • facilitating exchange of information, goods, services • payments associated with a market • In “our” market: • A central auctioneer or market-maker communicates with the agents (traders) using a predetermined and mutually agreed upon protocol and vice-versa • The market maker determines the trade and price according to a known algorithm

12. Design of Markets • Designing of markets involves designing of • protocols to exchange information between agents and market (auction, negotiation and game theory) • an algorithm that matches buyers and sellers and determines the amount of goods traded between them (optimization, algorithms) • pricing mechanism (optimization, game theory) • agents' behavior (complementary problem to market design solved using game theory)

13. Markets • Markets are resource allocation mechanisms, that distribute the constrained resources to the competing agents efficiently through pricing • How does Market design differ from resource allocation mechanisms? • Agents have lot of incentives to lie and they can lie • Agents are conservative in information revelation as they may be strategically used by other agents for purposes other than trade • Agents have intelligence to manipulate the allocation or market algorithm e.g. sniping in online auctions • Agents can be mischievous • Design a market algorithm that cannot be easily manipulated by the agents (mechanism design problem)

14. Auctions • English Auctions: Iterative, open-cry, ascending bid (property liquidation) • First-price Auctions: One-shot, sealed bid (tender auctions) • Dutch Auctions: Iterative, descending price auctions (flower markets) • Many online auctions are variations of the above. See baazee, ebay, amazon, indiatimes (includes B2B, B2C, and B2B)

15. Exchanges • Double Auctions: Open bid, continuous auctions with discriminatory pricing (stock exchanges) • Call markets: Closed bid, one-shot auctions with uniform pricing • Online exchanges use various combinations of rules

16. Multi-attribute Matching • Matching of buyers and sellers • Suitable for goods (raw materials, sub-assemblies) and services (logistics) • Multiple attributes: Price, delivery time, service cost, quality etc. • Tools: Multi-attribute utility theory, Multiple criteria optimization

17. Configurable Bids • Supplier’s bid for selling a computer: • Processor: (486: Rs. X1), (586: Rs. X2), (686: Rs. X3), … • OS: (XP: Rs. Y1), (ME: Rs. Y2), … • Monitor: (14”: Rs. M1), (19”: Rs. M2),… • Logical constraints: XP requires at least 586 • The buyer configures the computer that meets his demand and budget • 0-1 programming techniques and the problem is usually NP-hard

18. Piecewise Linear Price Fns • Price varies non-linearly with quantity • Can express negotiation strategy: buy more, pay less • Can express economies of scale • Mixed 0-1 programming problem and is usually NP-hard

19. Combinatorial Markets • Market sells products A, B, C • Bids: Single bid price for a combination of products - ([A, B], Rs. 100), ([B, C], Rs. 125), … • Can express complimentarity among products: A alone is Rs. 50, B alone is Rs. 60, but A and B together is Rs. 150 • Allocation problem is NP-hard

20. Design of Agents • Complementary problem to the design of market protocol • Given the rules of the market, what is the strategy of the agent? • In a bargaining situation, what is the first price offered by the buyer: 50% or 75% of his value? • Experimental economics and game theory • Celebrated Nash Equilibrium is a solution concept to the above problem

21. Conclusions • e-Markets are key to a faster and more efficient trade • e-Markets have positive influence all through the supply chain • There are challenging technical and theoretical issues in setting up and operating an e-market