SAN MATEO (03/24/2000) - Few would disagree that trading exchanges are going to be major conduits for doing business in the New Economy. Once these exchanges catch on, however, their founders and participants will have to clarify how transactions are going to be glued to back-end systems.
Specifically, what links, if any, should connect the exchange to the participant's back end after a deal has been made?
Lee Fife, CTO of Equilinx Inc., has been giving a lot of thought to this as he and his staff prepare to launch an online trading exchange for the marine shipping industry. Equilinx, in Arlington, Virginia, is set to take off in April.
"Buyers want our systems integrated with their existing purchasing systems," Fife said. But they don't want the connections just yet, he added.
"If we went to them today and said, 'In order to play, here's what you have to do [integrate your ERP (enterprise resource planning) system with the exchange],' we would see resistance and hesitation," Fife said.
That's because security concerns about opening up sensitive information to the Internet, and the potential cost of this integration, cause some participants to think twice.
"Even if we go to them and say 'we'll do this for you at cost,' we'll still get push-back," Fife said.
Participants will have to spend time and money on EAI (enterprise application integration), linking their ERP suites and legacy systems to trading exchange activities, a fact that will become increasingly clear as more participants use exchanges and trading volumes increase, said Larry Lapide, an analyst at AMR Research in Boston.
"I don't see the point of participating in an exchange without integration," said Kimberly Knickle, an AMR analyst. To get the maximum benefit, integration becomes a key issue, she said. At the same time, companies have real concerns about integration.
"Trading exchanges themselves are immature," Knickle said. "You don't know if the exchange will be in business a year from now."
Participants are reluctant to discuss the specifics of integration plans, even if they acknowledge that exchanges will definitely play a role in their future.
For example, although not a trading exchange participant yet, Eastman Chemical, in Kingsport, Tenn., has just completed two supply-chain pilots of WebMethods' XML-based offerings. Eastman conducted the pilots as a way to test how XML worked for purchase orders and simple acknowledgements between Eastman and its suppliers and customers, said Bill Graham, an e-business technology associate at Eastman.
The results will likely help Eastman shape a strategy for using trading exchanges in addition to its EDI (electronic data interchange) infrastructure, Graham said.
"We don't have any definite plans now," Graham said. But for ERP integration, Eastman "will probably use a spin-off of WebMethods' XML technologies."
Some non-EAI vendors have questioned the need for EAI, and the longevity of that need. Craig Conway, CEO of PeopleSoft, said the need for middleware may be short-term once users make the transition to business-to-business Internet commerce.
"No one chooses to use a middleware company if they can help it," Conway said in a recent interview.
Others are not so certain. As exchanges gain greater acceptance, "integration is going to become excruciatingly important," said Evan Quinn, an analyst at Hurwitz Group, a market research firm in Framingham, Mass.
"The more complex the b-to-b space becomes, the more you need EAI," Quinn said.
And there's every indication that the exchange space will heat up as more participants join. The integration complexities created by dynamic trading among hundreds of buyers and sellers will force EAI and e-commerce providers into a new realm.
"You're going to have a hell of a lot out there on the [exchange] hub," said Ed Acly, middleware research director at International Data Corp. (IDC), a market research firm in Framingham, Mass.
"We will have a need for an integration application," Acly said. This application will have to come from EAI and e-commerce systems vendors and exploit the infrastructures that exchange participants are beginning to extend across the Internet, he added.
Several major chemical companies are piloting an integration application that will connect their ERP systems to the World Chemical Exchange, run by San Francisco-based ChemConnect, said Jay Hall, vice president of product management and co-founder of ChemConnect.
The pilot projects, just out of the design phase, are likely to employ WebMethods' XML server technology and Andersen Consulting's systems integration services, and are expected to be under way by the start of the second quarter of this year.
"In the chemical industry these people have made tremendous investments in their ERP systems and they want to get some real value from them," Hall added.
"There's a lot of political capital in addition to financial capital invested in these things, and to be able to extend them beyond the enterprise into the Internet and to connect to new trading partners is very appealing."
As vendors scramble to create alliances and unified products to provide bridges into this new territory, IT staffs must weigh the risks of taking on a major integration effort against the promised gains of exchanges. Participants will need assurance that exchanges will offer exclusive channels to new customers and highly efficient supply chains. Once that happens, the participants will come.