E-business Power Shift

SAN MATEO (07/24/2000) - Although the initial rush to create business-to-business online trading exchanges has been dominated by industry consortia and start-ups, suppliers are likely to find themselves in the catbird seat in deciding whether new exchanges live or die.

But because of the formidable technical challenges and immature business models, suppliers are unclear which trading network they should join.

Consider the case of Marty Carrier, IT director at Awrey Bakeries, in Livonia, Mich. Carrier has been aggressively courted by half a dozen trading exchanges that are eager to add members. The networks promise to help with the major aspects of food production and distribution, all the way to restaurants.

Like many IT executives at supplier firms, Carrier is finding that the decision whether or not to join an exchange, as well as picking the right exchange, are turning out to be as complex as the layers of one of the chocolate tortes Awrey makes.

"There's no one leader," Carrier said. Awrey does not want to risk setting itself up with an exchange that fails to gather buyers and sellers. Nor does it want to join all of them. "You wouldn't want to -- I'd imagine you'd waste your time," Carrier said.

Until now, exchanges have been trying to strong-arm suppliers into getting online, but suppliers are in the driver's seat, said Randy Covill, an analyst at AMR Research Inc., based in Boston. "The truth is that the world needs suppliers, and the trading exchanges can't make it without them," Covill said.

In addition, time is running out for trading exchanges and, at last count, only the electricity, chemical, and surplus steel exchanges were showing "pretty good liquidity," Covill said.

Before getting on board, many suppliers are looking to industry heavyweights to define the transactions and standards for online trading.

"We're waiting for consortia, which we call the 800-pound gorilla.coms, to define the toolset of choice, the interfaces, the product codes, and standard purchase orders. They'll drive the standards and force all the little exchanges to hook up to them," said Michael Ereli, vice president of technology at Houston-based CheMatch, an exchange focused on spot sales of commodity chemicals.

Awrey is adopting EDI (electronic data interchange) to make the supply chain of Sysco Corp., the Houston-based marketer and distributor of food service products, more efficient.

"They make the first moves. Sysco runs the channel and they need to lead it," Carrier said.

The question is whether Sysco's EDI mandate is a move toward establishing a private exchange with Sysco in the middle, and whether food distributors will need to connect to many networks.

To sidestep the heavy lifting involved in linking to many exchanges, several alternatives are fast emerging. Ironside Technologies, in Pleasanton, Calif., and Haht Commerce, in Raleigh, N.C., offer access platforms for the sell side that reach multiple exchanges without locking in to a single one.

Requisite Technology Inc., in Westminster, Colo., creates and manages e-catalogs for supply chains. Start-up Contivo Inc., based in Palo Alto, Calif., last week launched a hosted application service that automates the connectivity among trading partners' applications.

Ultimately, the trading exchanges will have to abandon hard-sell tactics and find value-added services that are compelling to suppliers, AMR's Covill said.

"My advice to trading exchanges is to take the longer-term view, which is to please both buyers and sellers," Covill said.

Additional reporting by Martin LaMonica and Ephraim Schwartz.

Which way to go?

Options for b-to-b e-commerce:

* Consortium-led trading hubs

* Existing supply chains

* Independent exchanges

* Private trading networks

* Exchange-to-exchange software

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