Developments in e-commerce are following the traditional development pattern for new technologies. The initial phase sees the 'missionaries' raising the concept of a 'new' product or service to meet a clear business need; assuming these missionaries do their job well, someone will back their vision and start delivering an early version of the product or the service. Within a short time, both will know whether a 'real' need is being met - and whether this incarnation of the product/service is the one to meet it. If not, either we have witnessed a simple mis-reading of the market - or a second (or third) entrant refines the product/service and scoops any potential jackpot.
In the e-commerce arena - the initial rush was to establish e-commerce services on the Amazon model - selling relatively low-priced, high volume goods direct to consumers. However, consumers have shown themselves to be reluctant to move this b2c (business to consumer) model much beyond its simple beginnings - perhaps because they are worried about security of their credit card details, perhaps because they like to see before they buy, perhaps .
We have lately seen some high-profile business failings in the b2c arena - and cold feet amongst investors for the IPOs of new b2c ventures.
The new emphasis is on business-to-business (b2b) applications, and the highest profile is the new breed of online exchanges. Across all industries, firms are putting aside their natural competitive instincts and creating mutual exchanges into which they can electronically link their various suppliers, so that they can pool their resources to buy components, raw materials and services at better prices.
The awkward term coined for this approach is 'co-opetition' - improving the supply chain and competitiveness through co-operation. As ever, the initial idea has some merit - and some incarnations of it will work - but it is only effective where a real business need exists. Thus, where companies can show that the cost of supply is a major impediment to competitiveness, such an exchange may be of real value - but for how many organisations is this true?
And, of course, co-opetition implies that any gains made are also made by the other partners in the exchange. Where the aim of this is to offer all partners a joint competitive advantage over, say, foreign competitors, there is a point - but not all exchanges seem to have been established in such situations.
Three of the four of the world's top car manufacturers have formed such an exchange (Covisint). However, the fourth - Volkswagen - has opted to stay out and form its own electronic supplier network - presumably on the basis that it can do a better job and make a real competitive advantage. Similarly, one of the first exchanges was formed by a consortium of 12 leading PC manufacturers. However, Dell - already operating in e-commerce model - stayed out and maintained its own independent system. There is no evidence to suggest the consortium is anywhere near Dell standards of supply efficiency - perhaps because Dell has e-supply as part of an integrated e-commerce philosophy, not as an add-on to a traditional business chain.
This is not to suggest that all of these organisations should rush headlong to adopt the Dell model - the marketplace needs some variety and diversity (which is why b2b exchanges might be more stifling than facilitating in competitive terms - see second September 2000 update below). Besides which there is not the spread of expertise and talent around to support the vast numbers of b2b exchanges that have been suggested. Contrary to the claims of those selling e-commerce products and services, e-commerce is NOT easy to implement. Good, old-fashioned commerce generally beats bad new-fangled commerce. Similarly, a badly-designed and/or implemented b2b exchange may result in less-efficient supply processes.
The development of good e-commerce systems requires the old-fashioned virtues of good planning, effective system design (which understands the real business need), and solid implementation.
This is not necessarily simple to achieve when several organisations are involved - the end result may be an old-fashioned compromise.
No doubt we will see a number of b2b exchanges. No doubt many of these will be effective and successful. These will be the ones that are well managed to deliver on a clear vision, informed by a real need.
E-commerce vendor InterWorld has launched a software tool to help companies keep up with the ever-growing number of b2b exchanges or e-marketplaces. SupplyLink seamlessly integrates supply chain applications into established exchanges. It allows sellers to populate Ariba's Commerce Services Network and Commerce One's Marketsite exchanges automatically from a central catalogue, even though both exchanges require data in a proprietary format. This should meet the needs of sellers, who need to populate multiple exchanges simply, and also meet the needs of anti-trust/monopoly regulators who have concerns about buyers being locked into particular suppliers (and about other suppliers being locked out of possible trade)*.
SupplyLink is based on InterWorld's Commerce Exchange modular platform which uses the Commerce eXtensible Markup Language (cXML) and a drag-and-drop interface to build business processes. (see http://www.interworld.com)
*Some analysts claim that the fears of anti-competitive practices are unfounded, as the very nature of b2b exchanges renders them transparent and open - any 'collusion' is visible to the outside world - including the competition agencies.
ChinaH2O.com Ltd., a Hong Kong corporation wholly-owned by Euro Tech (Far East) Ltd. which is a wholly-owned subsidiary of Euro Tech, has launched a Business to Business internet platform located at http://www.chinah2o.com .
The purpose of the B2B website is to connect manufacturers, distributors and suppliers of environmental protection equipment and related consultants and engineering firms in the West with potential clients in China (i.e. water, wastewater treatment plants, environmental protection bureaus, environmental monitoring stations, related industries). The new bilingual (Chinese and English) Website provides:
Non-Members will be allowed free viewing of environmental laws, regulations, and news.
Ordinary Members will have the same access as non-members but will also be able to view searchable directories, post business offers, and receive free e-mail.
Professional Members will enjoy all the rights of an Ordinary Member plus have access to full content of the business opportunity page, a limited language translation services from English to Chinese and vice versa when posting business offers, and receive latest business leads notices sent directly via e-mail.
Revenues are anticipated from membership dues for professionals, off-line services (translation, market surveys and technical support), advertising, transaction fees for requested services and sales marketing information fees, while overhead is kept low as most personnel operating from China.
b2b or online exchanges have come under the spotlight of the European Commisison which is concerend about the anti-competitive situation that exchanges could create - a cosy world of price fixing that locks out smaller suppliers. After due consideration, the Commission ruled in August 2000 that MyAircraft.com, an online exchange for the trading of aircraft components, could operate as planned. However, they reserved the right to treat each of these exchanges as a separate case. This recognises that there is a significant potential to create cartels through the technology. Supporters (and developers) argue that online exchanges are too open and subject to scrutiny as public forums. They dare not create price cartels. However, there are fears that they could lock out smaller and emergent suppliers . The true answer is probably that the exchanges simply mirror industry practices that pre-date the b2b exchange; if an industry is pre-disposed to cosy supply arrangments, the exchange offers another means of protecting that cosiness.
Covisint is the exchange established by the three large US car makers - GM, Ford and DaimlerChrysler - and was approved by the Federal Trade Commisison in September 2000. This seems to have calmed general fears that such exchanges would be deemed anti-competitive. Analysts understand why the exchange was set up but are unsure of its real effectiveness. The reasoning is that none of these organisations is going to share information or technology where it feels it has a significant market advantage. The concept of the b2b exhange is new and it remains to be seen whether the concept stands the test of time - and business success.
Covisint is establishing a UK presence following recent moves into France and Germany. The aim is to persuade more suppliers to join the exchange formed by GM, Ford, DamilerChrysler and subsequently Renault/Nissan. In the last 3 months of operation, Covisint conducted $700m of business.
By April 2001, some b2b exchanges are starting to fray at the edges. This is not because the concept is fundamentally flawed, rather that the use of them is becoming more sophisticated and more selective : only the strongest can survive - those that add real value. Users are concerned with more than saving a few percentage points on price; they have come to realise that the overall cost of purchase involves more than the buy-in price. Rather than simple catalogue-based exchanges, users are looking for an exchange to provide a structured negotiating platform with different suppliers. There is still a role for the sell-it-cheap 'public' exchange, so it looks as though the marketplace will diverge into the cheap and cheerful and the high value-added. Most organisations will use sector-based, (semi-)private exchanges for standard procurement, but will need access to public exchanges for goods/services that are outside of their normal purchasing.
The public marketplaces that survive are likely to be owned by consortia of organisations from both sides of the purchasing operation - buyers and sellers, since buyers are likely to be suspicious of anything owned entirely by sellers.
Notwithstanding the demise of several b2b exchanges and a general air of gloom over the concept, there are real successes, TIMBERWEB is proof of the fact that you don't have to be the biggest company to have the most influence. As long as the niche you select is sound, and you fill it with appropriate services, you can be a success. Timberweb provides a vertical b2b exchange for (not surprisingly) the timber industry - the buyers and sellers of timber, and the foresters, sawmills and shippers that deal with timber products. The e-market at www.timberweb.com is a truly international marketplace and has had no real problem in attracting paying customers. It now boasts the world's largest database of timber and related businesses - perhaps its most valuable resource. The content of, and services of, the site have matured over the time the exchange has been in operation - for example, it recently added the first universal timber e-contract for online use. Members of Timberweb pay an annual fee dependent on how they wish to use the exchange (e.g. to advertise their wares) - typically these fees range from $75 to $400. There are web conferences, message boards, news reports, market research analyses, stock market reports and indices, currency rates, shipping schedules, job advertisements ... and some of the services are delivered muli-lingually .... Timberweb will consider anything that could prove to make the timber industry work more efficiently and effectively.
TESCO SETS THE PACE FOR B2B
The UK retailer Tesco has developed its business-to-business links from an early Electronic Data Interchange system to an online exchange that gives suppliers access to point-of-sale data. Other retailers are watching Tesco's slow but steady progress into this world of online business-to-business (B2B) commerce with great interest. As in business-to-consumer online retailing, Tesco is likely to be the one to set the pace. The firm has an enviable reputation for success and is defying its critics by continually innovating and extending its empire overseas.
Research from Taylor Nelson Sofres shows Tesco with 25% of UK supermarket trade, compared with Sainsbury's at 17.6% and Asda Wal-Mart at 17.5%. The core business is groceries, but Tesco has successfully extended its range into white goods and casual clothes where margins are higher.
Its e-trade operation, Tesco.com, is the envy of the industry. Tesco first linked its suppliers to its online systems using Electronic Data Interchange (EDI). By 1995 it encompassed 1,300 suppliers - 95% of all those Tesco dealt with. In 1998 the company decided it needed a more sophisticated service, particularly to view daily sales by group and by item. "We developed the ability to let every supplier see a snapshot of what they were selling, directly from our Epos (electronic point-of-sale) systems," says Peter Worsey, Tesco's B2B project controller.
Tesco next wanted a more collaborative process and in 1999 started to develop a promotions management system with General Electric Global Exchange Services (GEX). The resulting Tesco Information Exchange (TIE) links to 1,100 suppliers - representing 80% of turnover - and over 4,000 users. It receives 130,000 hits per month. The top three sites are for Epos sales, depot stocks and service levels. A usage spike during the petrol blockades shows how vital the system has become for up-to-date data in a crisis.
Feedback from suppliers has been positive, particularly on visibility, general service levels and fewer errors, says Worsey. The system "also gives a clear impression of what we as a retailer can do for suppliers." So what about return on investment? "My honest answer is we haven't calculated what it means in hard cash, but like EDI, we can't live without it," says Worsey. "If you said, could we switch it off tomorrow, the answer is absolutely not."
The arrival of public online B2B exchanges run by third parties has prompted Tesco to link to the Worldwide Retail Exchange (WWRE). It is also keeping an eye on Transora, the giant US retail exchange set up by manufacturers. Worsey says the link to the global WWRE public exchange lets Tesco "get some scale". Other attractions are speed and access to applications that are not available in-house. Through it Tesco can also talk to other retailers and suppliers and share best-practice issues. "We do not lose competitive edge by doing that; it is how you translate that information into good practice that matters," says Worsey.
Asked whether online working improves collaboration, Worsey says, "Yes, it does help but only partly. B2B doesn't transform your people. They still have to engineer the change. It's also down to firms to choose what's right for their business - that could be a mixture of private and public."
What SMEs (Small to Medium Enterprises) need to know about an e-marketplace
(from e-marketplace developer Virtualogistics)
The retail b2b sector has been through a period of confusion and consolidation in the last few months. In fact many companies are seriously wondering whether any real long-term efficiency gains will result from the use of exchanges.
The sector is currently served by 4 main exchanges. The Worldwide Retail Exchange (WWRE) and Global NetXchange (GNX) were set up by retailers, while Transora and CPG were launched by suppliers.
WWRE's members include John Lewis, Boots, Marks & Spencer and Tesco. The underlying technology is provided by i2, IBM and Ariba. See www.wwre.org
GNX has Sainsbury, Sears Roebuck, Carrefour and Metro with technology from Oracle/PwC. See www.gnx.com
Transora (supplier-led) has Kraft, Unilever, Diageo and Proctor & Gamble. Technology providers include Ariba and i2. See www.transora.com
CPG's members include Coca-Cola, Nestle, Danone and L'Oreal. Technology is from SAP and HP. See www.cpgmarket.com
The squeeze is off
Andy Kyte, of Gartner, told the IT Directors' Forum that if firms view e-exchanges as tools to squeeze the lowest possible prices from suppliers, the exchanges will offer little long-term benefit - and suppliers will cease to co-operate. It doesn't make sense to create an exchange that acts as a device for making it impossible (or at least unprofitable) for a supplier to do buisness with you. Kyte suggested that exchanges will gradually move from simply supporting catalogues, auctions and reverse auctions, to becoming online service providers or aggregators. The real benefit is from an exchange's ability to support collaboration and to improve speed-to-market.
Kyte also suggested that most exchanges will not generate any profits before 2002. They will only achieve this if they offer a full set of services from catalogue commerce, through requests for quotations and reverse auctions on to bid and offer exchanges to community services such as online trade shows, directories, knowledge sharing and collaborative working support.
Green light for Covisint
A European investigation into online exchanges has resulted in the approval of Covisint, the auto industry exchange. The EU has looked at this exchange as a model for others, and has consulted with industry groups - it found that many component suppliers were keen on joining Covisint or another exchange like it. Even though there have been concerns expressed about such exchanges leading to unfair advantages for larger firms, the EU suggests that such exchanges are likely to have pro-competitive effects, improving transparency and efficiency. Covisint offically opened its European office in June 2001 in Amsterdam.
Analysis form Giga Group suggests that many firms are disappointed with their experience of using b2b exchanges. Nearly half felt that their expectations had not been met; exchanges are certainly not the 'breakthrough' originally promised. Covisint (see above) seems to be somewhat of an exception - showing a large growth in usage. It seems that private exchanges are often too small to be successful (in terms of the numbers of 'partners' they bring together) or to be adequately funded, and that public exchanges involve too much compromise in, for example, approaches to cataloguing information.
This is not the end (nor even the beginning of the end) for b2b exchanges: it does, however signal a likely 'shakeout' and a refocussing of others. The investment made so far will, however, motivate a number to persevere - and experience may result in them eventualy realising the true range of services that their particular market requires.
Exostar is an online marketplace for the aerospace industry and was launched in October, 2000. It is restricted under competition law from carrying out combined purchases by a directive from the US Department of Commrce and the EU. Thus, as distinct from a 'bulk buying' approach - where companies band together to drive down prices - Exostar acts as a public infrastructure where companies carry out private transactions. The main participants in Exostar are BAE. Boeing, Lockheed Martin, Raytheon and Rolls-Royce, and they suggest that Exostar will become their primary method for transacting with suppliers. BAE, for example, plans to have 80% of its transactions online within 4 years.
SupplySolution, Inc., the provider of supply chain applications, and Covisint, the e-business exchange for the automotive industry, have announced a series of milestones achieved by Covisint Fulfilment, based on SupplySolution's i-Supply(TM) Service, one of the manufacturing industry's most widely-used Web-based applications for direct material fulfilment. i-Supply is available through Covisint, as Covisint Fulfilment. The technology is now in operation at over 2,000 companies worldwide. Covisint Fulfilment is a hosted Internet enabled application that processes within a Global Infrastructure, a robust and secure architecture that contains process service-level monitoring, total redundancy, back office and customer data normalisation, with differencing engine capabilities throughout. (In March 2001, SupplySolution signed an exclusive provider agreement with Covisint, providing automotive users access to i-Supply co-branded as Covisint Fulfilment, and all related infrastructure technologies, through the Covisint exchange.) For more information, about SupplySolution, visit http://www.supplysolution.com .
First 4 Farming (F4F) is the world's first business to business e-hub specifically for the faerming commnuity. The exchange went live in January 2002 with the primary purpose of transferring electronic documents between trading members' customers and suppliers. The service has been financed by 12 equity partners (originally 9, but 3 were added subsequently), all from the farming community. No venture capital was involved - this is a self-help model, built by a comnunity for that community. Progress Software won the original tender nad put together a consortium of indpendnet software vendors. Building the e-hunb started in june 2001 - so it was a relatively swift development process. Over 50% of the UK's grain, seed and feed producers, fertiliser manufacturers and distributors, as well as agro-chemical manufacturers have decided to join the exchange.
The second phase of the initiative - an industry portal for farmers - will follow "around harvest time 2002". It will provide a single source of farming and related information for the rural community and enable farmers to trade with suppliers via a browser or email, to order goods, obtain information or access their individual trading account details. Suppliers will operate their own branded stores within the F4F portal. See www.first4farming.com.
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