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October 4, 1999

Hosted Buying Communities Get Boost

Siemens, SAirGroup plan to offer service; Ariba aims network at smaller businesses

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he latest trend in Web procurement is for large enterprises to aggregate and host online buying communities of small and midsize businesses. Siemens Corp. and SAirGroup, the parent company of Swissair, last week became the latest companies to say they would offer such services, following the lead of Chase Manhattan Bank, Merrill Lynch, and Wells Fargo. Also last week, procurement vendor Ariba Inc. introduced a new service to facilitate such efforts.

SAirGroup, which uses Ariba's Operating Resource Management System (ORMS) for internal procurement needs, plans to launch a hosted buying service that focuses on aviation-related industries. The hosted buying service due late next year from Siemens Procurement and Logistics Services will use software and services from Ariba's archrival, Commerce One Inc.

"The focus of online procurement is expanding," says C.J. Glynn, VP of corporate marketing at Ariba. "The initial focus for large companies was on saving money. Now, they're looking to form their own commerce communities to deepen relationships with customers and create a new revenue stream."

Ariba says its Internet Business Exchange service will let smaller companies leverage the buying power of larger companies, such as SAirGroup, to automate procurement and receive better pricing deals online. The service consists of a hosted application with streamlined purchasing, outsourcing, and other commerce services that industry leaders can offer to their smaller business partners.

Internet Business Exchange "can be very beneficial for small-business procurement," says Bob Parker, an analyst at AMR Research. "Commerce is changing rapidly and smaller companies need to aggregate with larger companies to get that same buying power."

Internet Business Exchange is scheduled to be available early next year. Pricing hasn't been determined, but may be based on a subscription model with possible sharing of the host company's revenue, Glynn says.

Ariba also revealed at its user conference in Burlingame, Calif., that J.D. Edwards & Co. has extended its existing alliance with Ariba and will begin offering Ariba's ORMS application to its customer base of WorldSoftware users under the name J.D. Edwards E-Procurement. Since May, the company has offered E-Procurement only to users of OneWorld, its network-centric applications suite.

Last week's agreement, similar to a pact Commerce One has with PeopleSoft Inc., gives Ariba access to about 5,000 more J.D. Edwards customers. "This is a key deal in our strategy of expanding the on-ramps to our business-to-business network," Glynn says. "All those existing and prospective J.D. Edwards customers will be driving transactions through the Ariba Network."

Ariba also said ORMS Release 6, which some customers have had since May, will now be generally available. It's the first version of the company's flagship application that relies on the Ariba Network for supplier catalog content hosting, directory services, and routing. It also includes connectivity for multiple enterprise resource planning systems among different divisions in a company, customized catalogs for individual users, and the ability to create custom forms for travel authorization, 401(k) signups, and other internal processes.

Ariba also unveiled seven new large customers: Andersen Consulting, Charles Schwab, CNA Insurance, Deloitte Consulting, Morgan Stanley Dean Witter, Motorola, and National Semiconductor.

Volume Discounts
Meanwhile, Siemens Purchasing and Logistics Services, which handles purchasing and other functions for most of Siemens' North American operations, will first deploy Commerce One's BuySite app for Siemens' internal procurement needs. Siemens' hosted buying service, which will target Silicon Valley manufacturing and software companies initially, will aim to provide volume discounts from current Siemens business suppliers such as Boise Cascade Office Products, Compaq, Dell Computer, and Hewlett-Packard.

"We expect the savings on our own internal processes to offset the costs" of the Commerce One software, says Sandra Boyd, E-commerce procurement specialist at Siemens Purchasing and Logistics Service. "The revenue we would generate from outside customers would be icing on the cake."

--with additional reporting by Aisha M. Williams

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