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Top users wary of exchanges

Multinational food giants Unilever and Nestle have given a cool response to managing suppliers through online exchanges, writes David Bicknell.

Both companies have already been approached by marketplace developers, but have refused to take part. The real economic value of exchanges has yet to be established, the firms say.

A number of electronic marketplaces are being set up by firms to help eliminate supply chain inefficiencies. Proposed electronic exchanges now involve about 300 companies, controlling up to $3 trillion worth of purchasing transactions a year.

Exchanges are being set up by sectors including oil, mining and transport. Millions of pounds worth of savings are expected through volume purchasing.

However, Unilever IT director Martin Armitage and Tom McGuffog, director of e-commerce at Nestl‚, both told the annual conference of electronic messaging group EEMA last week that the electronic marketplace concept could negate the advantages gained from building a long-term relationship with suppliers.

Armitage said that in IT purchasing Unilever already benefited from long-established relationships with suppliers.

As a multinational, it buys in large volumes at discount prices, he said.

Armitage, whose company has more than 100,000 end-users and an annual IT budget of over £600m, said large users could easily find the lowest prices from a marketplace and request that from existing volume suppliers.

Armitage painted a picture of future IT where, for e-commerce, 50% of applications would be outside the company firewall, serving internal users, customers and suppliers. This could mean an IT department would manage more than 200 firewalls, he said.

Last month, the Computer Weekly/Harvey Nash Big Question found 59% of IT managers did not agree that exchanges would improve supply-chain efficiencies, or were unsure of whether the e-marketplace model would work.

Analysts including Gartner have warned clients that the boom in online trading exchanges cannot last.

While there may be as many as 10 exchanges per industry sector in the boom period, this will drop to two or three over time.

This was last published in June 2000

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