If you've been a regular reader of this publication, then you've heard quite a bit about private logistics exchanges in recent years. These exclusive Web sites, also known as private portals or private networks, help companies centralize control over such activities as managing their core carriers and viewing inventory throughout their supply chains. They also can serve as repositories for data that's shared among a selected group of transportation providers and trading partners. "The benefits (of these private networks) depend on the type of exchange," says Jeff Woods, a senior analyst with the Gartner Group in Stamford, Conn. "Some reduce freight costs or safety stock and inventory. Some will give you better control over promotional items."

Because the benefits of a private exchange can be quite substantial in some cases, they are fast gaining adherents. But they're not something you can jump into quickly. Not only is there considerable expense and commitment involved in building one, but there also are some 20 vendors claiming that they can set up these password-protected sites in some fashion or another.

So if you're among the growing number of shippers who are thinking about setting up a private network, it's a good idea to consider the following seven qualifiers before you choose a vendor and sign on the dotted line.

1 Buy a network solution, not a site package. For starters, make sure the vendor is selling a true network solution. Too often, shippers find that some private "networks" are actually a transportation management or inventory-visibility package that is limited to operations inside a company's four walls. A network solution, by contrast, is designed to facilitate communication among many parties. All members of your supply chain—carriers, suppliers, and customers—should be able to submit and receive information through an Internet-based private information network.

Look for an informational structure that can reach all points of control, right down to each shipping dock, advises Jim Uchneat, a partner at Benchmarking Partners in Cambridge, Mass. "You have to have the functionality to touch all the points and make the access easier," he says. "You want connectivity with carriers at all points, but you want to minimize the points of data integration." Ultimately, he says, you'll want all the operational data to go through one management network to create a single database.

2 Look for multiple-partner connectivity. Since a private portal should be the center of the network, like the sun in the solar system, it requires the ability to connect easily to many partners. The portal vendor, therefore, should have the ability to translate a variety of message formats and then make that information available to all participants on the Web site.

"The vendor should be able to interface with multiple partners in multiple formats, from EDI (electronic data interchange) to XML (extensible markup language)," says Uchneat. The network provider should also be able to accommodate other, less-sophisticated forms of communication like faxing if necessary, he adds.

3 Check for ease of integration with other systems. The provider should be able to integrate its solution with existing applications quickly and seamlessly, both within the walls of your company and with the various members of the trading community. A vendor should already have interfaces in place to allow data to be exchanged with existing software, whether it's a specific logistics application or general office software for handling e-mails. All of that information, moreover, should be easily accessible in a single place. "The logistics manager should get direct access to SAP on the same screen with access to his e-mail," says Gary Cross, a consultant in the supply chain practice at IBM in Armonk, N.Y.

4 Make sure the system offers advanced analytical tools. Because a private network creates a central depository of information, it provides an opportunity to examine that data and discern patterns in your transportation and distribution operations. To get the most out of a private exchange, therefore, look for a provider that includes advanced tools such as planning, analysis, and optimization applications.

Planning tools take advantage of visibility—advance knowledge of incoming shipments—to allow more efficient coordination of freight movements and warehouse resources. In conjunction with optimization applications, for example, these tools can show you where to consolidate shipments to save on transportation.

Uchneat notes that some providers offer tools that support strategic modeling of the physical distribution network. This type of software can improve the contracting process because it can help determine where in the supply chain shipment volumes are great enough to leverage for lower rates, Uchneat says. "You may only have the volumes (of freight) to negotiate at different points," he notes. "You can only do that if you understand what's happening."

5 Choose a scaleable solution that can grow with your business. Be sure to look for a vendor whose network solution is scaleable. "Since you're talking about using Web portals as a medium for communications, then it has to be scaleable," says Uchneat. If, for example, you need to add more carriers or other modes of transportation, then the network should be able to easily accommodate them. And if you decide to greatly increase the volume of shipments through the portal, the planning and optimization tools should still be able to quickly process the concomitant increase in data.

6 Pick a business solution rather than a specific technology. Make sure that whichever technology you choose supports your overall corporate logistics objectives. If, for example, you want a portal mainly in order to oversee carriers, then it doesn't make sense to buy a solution that is more apropos to visibility management. "The driving force should be the business process rather than the technology," says Uchneat.

Once you've determined which business process is most important, identify any information and technology gaps that stand in the way of implementing or improving that process. Then look for a vendor that is offering a product that will support your objectives. "It's the ability of the vendor to fill in gaps to enable a specific business process that you want," Uchneat says.

Logistics consultant Steve Gold of the Chicago office of the consulting firm BearingPoint agrees. He urges shippers to be sure that the solution they choose will do the job they want at a price they are able to pay. "Shippers should take some time to understand how these technologies integrate into their companies and what the real cost/benefits are," he recommends.

7 Ask for customer references. As is true any time you purchase services, you'll want to check each potential vendor's track record and ask for references. Even though private exchanges are relatively new, any provider should be able to showcase other companies that have successfully implemented its solution.

Al Fitzpatrick, director of customer relations for Toshiba International Corp. in Houston, has used vendor NTE for more than a year to handle almost 20 percent of his company's domestic freight. He suggests shippers choose a vendor that offers a proven business model and can demonstrate that it generates savings and efficiencies. Among other things, Fitzpatrick recommends that the vendor have a good track record for reducing damage claims and upgrading on-time performance. The vendor must also be able to increase visibility into shipments and be proactive in its communications. "Customers must be able to see and experience the value-add," he sums up.