Should your company pursue a public or private exchange?
By William C. Copacino -- Logistics Management, 9/1/2000
This column represents the fourth in a series on business-to-business (B-to-B) exchanges. My last three columns explored frameworks for understanding procurement models, marketplace models, and the likely evolution of B-to-B exchanges. This column will focus on the crucial question facing virtually every company, particularly the Fortune 2000: Should my company join a B-to-B exchange?
We have seen different responses to this question. Some supply chain leaders such as Dell and Wal-Mart have been notably absent from this arena, choosing not to participate in either of the two major exchanges that have evolved in each of their industry segments. At the same time, we see broad participation in the exchanges evolving in the utilities, energy, food and packaged goods, rail, retail, electronics and computers, airline, aerospace and defense, automotive, and other industries. Finally, we see a number of companies playing in both arenas-participating in public industry exchanges and developing a private exchange in parallel. Let's explore the arguments for and against joining a public B-to-B exchange.
On the pro side, a public exchange:
Encourages industry progression toward more efficient and effective performance by hastening the development of process and data standards;
Spurs management focus and attention on an aggressive exchange-development effort;
Allows companies to share investments and costs to develop and implement exchange capabilities;
Provides a single place for suppliers to connect with customers;
On the con side, many public exchanges suffer from:
Slow or unresponsive governance and decision making because of the need to develop consensus among the players;
Unwillingness of participants to share best practices (e.g., business processes) and procurement data with competitors;
Potential limitations imposed by antitrust concerns;
Limited liquidity, which diminishes the public exchanges' economic viability.
In parallel, we have seen an increasing number of companies engage in a hedge strategy-developing a private exchange while participating in a public one. This approach allows participants to leverage knowledge and standards developed in the public forum, advance rapidly by avoiding the lagtime needed for consensus discussions, preserve full confidentiality, and leverage the aspects of the public exchange that make sense. The major benefits from exchanges will come from enhanced collaboration with suppliers on supply chain planning and product design, not from purchasing aggregation.
As for whether your company should join an exchange, there is no single right answer for all companies. Each must assess its competitive position and the industry dynamics and make its own decision.
William C. Copacino is the managing partner of Andersen Consulting's Global Supply Chain Practice. 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.
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