Today, it seems that every big company wants its own private Web-hosted meeting place where it can conduct business with suppliers and carriers. Take Nu Skin Enterprises, for instance. In March of this past year, Nu Skin, a Provo, Utah-based seller of skin, hair-care and nutritional products, went live with a private Web-based exchange for communications with its inbound carriers. The exchange, set up by Elogex of Charlotte, N.C., will allow Nu Skin to tender loads to a select group of core motor carriers and monitor the movement of inbound shipments. "The long-term goal is to provide visibility from the vendor to our distribution people in each foreign office so we have control over inventory," says Brad Morris, Nu Skin's vice president of logistics. "We [hope it will] have a positive impact on inventory turns, service levels and overall costs."

Nu Skin is hardly alone these days. In the past six months, a number of leading retailers and manufacturers have set up so-called private transportation exchanges, Internet sites accessible only to company-approved vendors and their carriers. These sites are intended to automate load tendering while offering visibility over incoming shipments to plants, stores or warehouses. Though the use of the Internet is a new twist, the concept itself is hardly revolutionary. Private exchanges are a "substitution of technology and automation for processes that companies already have in place," says Robert V. Delaney, vice president of Cass Information Systems Inc. of St. Louis.

The recent rush to set up private exchanges, particularly among retail and grocery industry players, is part of a much larger logistics cost-control strategy. Many companies have high hopes that private exchanges (or networks, as they're also known) will allow them to consolidate incoming shipments, reducing costs by a substantial margin. "The retailers are looking at cutting costs on their inbound supply chain," confirms John Fontanella, an analyst with AMR Research in Boston. "That's why there's interest in Web-based networks."

In their earlier incarnation, Internet-based exchanges were set up as online auction sites open to all comers. But these public exchanges attracted few bidders. Carriers disliked them because they feared that the frenzy created by a digital auction would cause a whipsawing of rates; shippers were reluctant to venture into the public marketplace, preferring to do business with a group of carriers with a demonstrated track record of reliable service.

In the end, private exchanges proved more attractive to shippers, largely because these networks allowed them to connect with their own base of suppliers and carriers. "Everybody wants to have a network or exchange with their own participants and their own rules," explains John Murphy, vice president of product and solution strategy for NTE in Downers Grove, Ill., which created one of the first public exchanges. "They're not interested in public ones."

In a private network, companies can still take advantage of the Internet to exchange shipment information with their supply chain partners via a special secure Web site. "Private networks preserve confidentiality between buyers and sellers," observes Delaney.

Private networks also offer shippers the ability to view the movement of freight and look for opportunities to aggregate smaller shipments into large loads. "[Shippers] are looking for visibility as well as consolidation and optimization [opportunities]," says Fontanella. "With an exchange, they can look across multiple vendors and ... turn three LTL shipments into a truckload."

In the past six months, the notion of the private network has gained traction, particularly among retailers and grocers. "Retailers are taking greater control of their inbound shipments," reports Adrian Gonzalez, an analyst with the ARC Research Group in Dedham, Mass. "There's been poor compliance with their routing guidelines. If they had better visibility, maybe they could create multi-stop shipments and do more backhauls."

Besides obtaining visibility of incoming shipments, retailers are also seeking to tighten their dock-door management, says Kevin Lynch, chief executive officer of Nistevo of Eden Prairie, Minn. "They want to shorten delivery windows because they don't want to take ownership of inventory before they need it," explains Lynch. "They want to manage the resources at the dock door and control what comes into the store."

Industry analysts believe that many large retailers view private networks as an excellent way to get a handle on their transportation costs. "The big retailers are upset that suppliers are hiding transportation costs and bundling them into product prices," says Fontanella. "The retailers see this as giving them an advantage in terms of cost reduction."

ARC estimates that the market for so-called hosted solutions totaled $116 million last year. And while a number of vendors have entered the business of setting up private portals, ARC says that the leader in terms of revenue is Descartes Systems Group of Waterloo, Ontario. Although Descartes is active in providing global exchanges, it has also assisted U.S. retailers in setting up private networks. Last year, the nation's leading drug-store chain, $22 billion CVS Corp. of Woonsocket, R.I., selected Descartes to set up an inbound network. It has since connected six suppliers and 26 carriers to the network, and plans call for the integration of another 50 suppliers and their carriers. "We saw several advantages to connecting to the Descartes network rather than developing our own visibility systems internally," says Kevin Smith, senior vice president of supply chain and logistics for CVS, "especially since the Descartes solution could be implemented relatively quickly and [work] in conjunction with our existing system."

Another vendor, Elogex of Charlotte, N.C., has been active in setting up exchanges recently as well. Not only has Elogex contracted with Nu Skin Corp., but it has also signed up such well-known grocery chains as Shaw's Supermarkets Inc. of West Bridgewater, Mass.; Hannaford Bros. Co. of Portland, Maine; Safeway Inc. of Pleasanton, Calif.; and Kroger Co. of Cincinnati as clients.

Though the Nu Skin initiative has only recently gotten under way—about 10 percent of the company's inbound carriers are linked up right now—the company is already using the system. Today, whenever Nu Skin has a load ready for pickup, the Elogex system sends out an e-mail notice to the designated primary carrier, reports Brad Morris. If the primary carrier rejects the freight shipment, the next carrier on the list is contacted about accepting the freight. In addition to load tendering, the system can schedule receiving dock appointments electronically, eliminating the need for phone calls.

But Elogex and Descartes aren't the only platform providers in this market. Supercenter chain Meijer Inc. of Walker, Mich., uses LeanLogistics' Internet-based private transportation exchange for online load tendering as well as the execution and management of all of its inbound transportation activities. The hosted application delivers end-to-end, around-the-clock visibility on all loads and purchase orders, says Ed Nieuwenhuis, Meijer's vice president of logistics.

Even the original proponent of public exchanges, NTE, has moved into the private portal market. NTE has set up five private networks to date, including one for the major retailer Target Stores of Minneapolis. "Target has gained control over when and what a vendor ships to it," says NTE's Murphy. "This allows Target to use optimization and consolidation technology and start applying it against its inbound transportation."

Another vendor, Nistevo, has set up 22 private exchanges, including systems for such well-known corporations as General Mills of Minneapolis, Pillsbury of Minneapolis and Coca Cola Enterprises of Atlanta. Nistevo CEO Lynch says that he's seen a lot of interest on the part of retailers and grocers in deploying a private exchange to manage inbound transportation. "It doesn't seem strategic," says Lynch, "but it is."

Although many U.S. companies are setting up operations to gain more control over domestic inbound transportation, companies are also using private exchanges to manage international movements. Mitsubishi International Corp., which has its U.S. headquarters in New York City, recently contracted with GT Nexus of Alameda, Calif., to provide a private network to manage the 50,000 containers it brings into the United States each year. The trade and investment company, which has interests in machinery, foods, chemicals and apparel, plans to employ the network with its ocean carriers. "Logistics is a key function of traders," says Takashi "Tim" Tsuji, Mitsubishi International's manager of logistics. "We wanted to enhance that function."

Yet another vendor, Arzoon of San Mateo, Calif., has set up private networks for such shippers as Thomson Multimedia of Indianapolis and Solectron of Fremont, Calif. Jim Molzon, vice president of global logistics for Solectron, is rolling out Arzoon's system to manage both inbound and outbound transportation. "This certainly gives us the ability to monitor [our suppliers] to make sure they are using our core carriers," says Molzon. "It's a management tool we can use to ensure that we are using the right carrier for a given move, in terms of mode and service level."

Also competing in this market is G-Log of Shelton, Conn., which set up a network for Wilmington, Del.-based DuPont that went live this spring. The network manages all of DuPont's freight movements, both inbound and outbound via ocean, truck, rail and air. "TransOval, DuPont's logistics Web portal, was created to address the need for improved decision-support information globally," says Jerry Reynolds, manager of DuPont's global logistics technology and processes. "TransOval will provide integrated logistics decision-support information and visibility across the entire supply chain."

Logistics.com of Burlington, Mass., has set up private platforms for a number of companies, including Quaker Oats Co. of Chicago and Compaq Computer Corp. of Houston, to manage their carrier bases. "The interest level has picked up as the economy picked up," says Evan Eggers, director of marketing at Logistics.com. "In the past, shippers have had two sets of processes: one for planning and one for execution. To manage their costs, they have had to integrate those two processes."

Likewise, Celarix Inc. of Cambridge, Mass., has set up a dozen private networks for multinational companies. "In today's global economy, companies must use their supply chains as a competitive weapon to get their products into the hands of customers faster than other companies in their space can," notes Evan Schumacher, CEO of Celarix. "To accomplish this, supply chains are being enhanced with Web-based collaborative technology that connects factories, transportation providers and partners to move products around the world more efficiently."

Whether they're used to manage international or domestic shipments, private networks appear to be multiplying as large companies attempt to tighten their control over the supply chain. Many analysts expect that in the coming months, even more of the corporate heavyweights will deploy this technology. As Dwight Klappich, a program director with the Meta Group, a market research firm in Stamford, Conn., predicts: "People who have the clout with suppliers will in essence force them to work through their networks."

What did you think of this story? Let us know at LMFeedback@reedbusines.com.