Supply-Chain Integration Could Best 'Net Exchanges

RosettaNet, a high-tech industry consortium formed to create a global standard supply-chain interface, presented its marquee industry members -- Cisco Systems Inc., Intel Corp., Hewlett-Packard Co., Motorola Inc., and others -- to the press last week. Each company explained how it is deploying RosettaNet to link suppliers more tightly to their business processes.

The event was held to mark the Oct. 10, 2000, goal put forth last year for production system deployment of RosettaNet's Partner Interface Processes (PIP) technology.

The event was mainly focused on touting the benefits of using the RosettaNet technology, with the underlying message that the advantages of supply-chain integration overshadows any benefits an online exchange might offer.

In fact, the words "exchange" and "marketplace" were barely mentioned by any of the attendees. Instead they claimed the business benefits often associated with the creation of online exchanges for supply-chain integration alone.

Some industry experts suggest that 80 percent or more of the benefits of an exchange come out of supply-chain integration and that the downside of open exchange for direct procurement outweighs any additional benefits.

"Many of our customers are saying, 'forget it. I am not willing to compromise my way of doing business even if it shaves a point off price,' " said Steve Scala, vice president of Integration Solutions at GE Global eXchange Services (GXS), in Gaithersburg, Md.

Scala added that the success of a company such as Wal-Mart over more established retailers was largely due to its supply-chain efforts.

In a similar vein, an HP executive said the company saw a dramatic reduction in the process time of contract manufacturing for HP Unix servers by using supply-chain technology on a one-to-many suppliers -- or closed exchange -- business model.

"What used to take days took minutes," said Pete Karolczac, CIO of HP.

Other companies offered similar stories of faster time to market, including Mike Campi, vice president of global supply management at Cisco, in San Jose, Calif., which is currently using various RosettaNet PIPs for forecast notification, inventory reporting, and production configuration.

According to John Lucadamo, director of people and asset effectiveness at Lucent Technology, in Allentown, Pa., since Lucent deployed its specific RosettaNet PIPs, the company has seen a 50 percent reduction in time working with their current suppliers for component selection and a 75 percent reduction in time for risk assessment by its design department.

Although GXS creates technology for both open and private extranet, Scala believes that many of the open exchanges will implode over the next few years.

"Some of these public exchanges will realize two or three years from now [that] they have sacrificed too much and they want to do things the others don't want to do," Scala said.

To link or not to

Supply-chain integration via exchanges poses risks.

Pros:

* Access to many suppliers

* Aggregate buying power

* Better forecasting, faster marketing

Cons:

* Loss of one-to-one relationships

* Open exchange can mean exposure

* Higher cost of business/transaction fees

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