The need for B2B exchanges

Everyone is talking about business-to-business exchanges. We look at some of the issues you should consider before rushing to...

Everyone is talking about business-to-business exchanges. We look at some of the issues you should consider before rushing to join one

I'm reading more and more about electronic "marketplaces" or "exchanges", and their power to streamline procurement procedures, cut costs and reduce inventory lists. What exactly is involved in joining one of these exchanges and would we derive any benefit from setting up our own, or would I risk squandering scarce resources on what could be little more than e-business hype?

Exchanges are attractive but risky

Roger Marshall,

Elite

It is early days for the business-to-business exchanges, so there is little experience available to judge how successful they will be. No doubt some will get the business model or the technology wrong and will fail. But if the resources being poured in by multinationals in the biggest industry sectors are anything to go by (and they usually are) then this aspect of e-commerce is going to be big, very big.

The idea of setting up an exchange may be attractive but it is bound to be a very risky venture. With the costs of entry apparently low there will be lots of others to compete with. As a classic intermediary, how will you attract buyers and sellers to your particular exchange? Only the lucky, the rich, niche players or those able to exploit a strong existing position as an intermediary will have a reasonable chance of survival. It is already too late to be a pioneer.

There is, however, a strong message for you as an IT director. If you haven't already joined an exchange, started work on integrating them with your existing systems or at least considered how that will be done, then you are in grave danger of being swept away in the tide. At the very least you should be pressing your fellow directors to work out your company's strategy. Your future, and the company's, could depend on it.

Roger Rawlinson

Head of e-business technologies, NCC Group

Examine strategy as a whole

As with all new innovations those that enter first have the potential to reap the rewards (or lose a lot of money). You are, therefore, right to have identified exchanges as an issue for your business.

My advice, however, is to examine the whole of your e-business strategy, and consider electronic marketplaces as an element of this, not in isolation. If investigation is still warranted, thoroughly research the options for your sector and identify the potential benefits and costs.

Whether to join or set one up is a big question. Ultimately it will depend on your organisation's position, skills and resources. Stick to the knitting may be an apposite adage here. If electronic exchanges are already in place for your sector, I would not attempt to set one up (unless you can confidently compete).

Mark Barratt

Teaching fellow in supply chain management, Cranfield School of Management

Consolidation is inevitable

At present, there are many announcements of intentions to create marketsites, although the reality is that there are very few in actual operation. One concern is how sustainable these numerous marketsites are in the long-term? Consolidation seems almost inevitable and time may result in the evolution of a small number of mega-sites covering multiple industries (eg Ford, GM and Daimler-Chrysler have already consolidated previously individual marketsites).

Some of the key success factors for these marketsites appear to be attracting some big named players, attracting large volumes of transactions to sites, and providing reliability of services (which to some extent relies upon the marketsite membership accreditation process).

A potential barrier to these marketsites is the issue of unfair competition where large buying groups unfairly exploit their considerable spending power over smaller, less powerful suppliers.

It is not clear at present how much benefit these marketsites will deliver to potential players. While significant cost reductions are promised (30-40%), the realities presented reportedly average out to closer to 10%.

Professor Dan Remenyi

Competitive advantage for all

While there is virtually nothing involved in joining many of these electronic marketplaces or exchanges, the question of setting up your own is quite different. It is not cheap to set up what is generally called an infomediary, which is what you are actually talking about. As the hub of this activity, you will have to bring together a lot of different organisations and this takes time, money and expertise. Certainly before you think about setting up your own operation you should really be a skilled user of this type of facility. There is competitive advantage out there for the taking.

David Taylor

Certus

Dip a toe in the water

Electronic exchanges promise to be a powerful way of enabling organisations to benefit from greater choice and flexibility in the market. They can significantly reduce procurement overheads and red tape by automating a large part of the procurement process.

In theory, they should offer access to a greater range of products, moving faster and more responsively and allow companies to pick and choose among suppliers more easily. In practice, they are not all they are cracked up to be. Many companies are not ready to share too much information with a cyber-presence that is also serving their competitors. This slight paranoia is understandable, but will disappear as the model gains more followers.

I think you should put a toe in the water and try out the electronic procurement route, but don't expect miracles or allow yourself to become dependent on it yet.

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