Networks of exchanges are on the horizon

By William C. Copacino -- Logistics Management, 8/1/2000

In my last two columns, I outlined frameworks for categorizing procurement models (buyer-centric, seller-centric, and many-to-many marketplaces) and marketplace models (field managers, MRO hubs, catalog hubs, and exchanges). In this column, I want to explore how B-to-B (business-to-business) marketplaces will evolve.

I see these marketplaces developing in three phases:

Popcorn Stands-The first phase (circa 1999) involved the emergence of dot-com exchanges-trading hubs that matched buyers and sellers. These dot-com exchanges had limited functionality and limited liquidity, but they provided an environment in which buyers and sellers could extend their reach, reduce transaction costs, and create more efficient markets.

Unnatural Consortia-The second phase (circa 2000) saw the proliferation of these dot-com exchanges and the formation of industry consortia, which provided a foundation for moving beyond matching buyers and sellers to broader collaborative capabilities. Although these exchanges will likely proliferate into the thousands, we expect that many will achieve minimal liquidity and fail. Nevertheless, data, document, and process standards will evolve, and these industry consortium exchanges therefore will provide a platform for creating substantial value-added service for participants. Companies also will discover the power and synergy available from operating both public and private exchanges.

Interconnected Exchanges-The third phase (2001 and beyond) will witness the dramatic consolidation of dot-com exchanges and the emergence of "ERP-integrated trading hubs" and interconnected exchanges. These trading hubs and exchanges will offer robust functional capabilities (including design collaboration, supply chain collaboration, deep content, hosted applications, and more). The interconnected network of exchanges will allow companies to source selected items from a vertical exchange, link to a horizontal exchange to execute indirect purchases, engage in broad collaboration through their private exchange, and dispose of excess inventory through a linked auction capability. These robust capabilities will significantly reduce operating costs, cycle times, and inventory, and will contribute significant shareholder value. The exchanges themselves will create, but not capture, value. Instead, the value will flow to the companies that provide liquidity through the network of exchanges.

This network of exchanges is not a pipe dream. It will become a reality in the near future; in fact, I expect its formation to begin within 18 months. Networks of exchanges will take logistics and supply chain management from the backroom to the boardroom.

William C. Copacino is managing partner of Andersen Consulting's Strategic Services Practice for the Americas. A frequent speaker before business and professional groups, Mr. Copacino has a number of publications to his credit, including the book Supply Chain Management: The Basics and Beyond (The St. Lucie Press, 1997). He is based in Andersen Consulting's Boston office, 100 William St., Wellesley, MA 02181. Phone (617) 454-4480.