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February 28, 2000

Marketplaces Bring Order And Efficiency To Supply Chains
By Bob Wallace and Beth Bacheldor

espite the advent of supply-chain software, many large companies are still struggling to make the procurement of production materials more efficient. Some are launching electronic marketplaces to bring efficiencies to their own supply chains. Others realize they can create a new revenue stream by offering those efficiencies to others in their industry. Last week, three companies announced plans to do just that for the auto-parts, telecommunications equipment, and trucking industries.

Toyota Motor North America says its Toyota Motor Sales USA division is partnering with supply-chain software provider i2 Technologies Inc. to create iStarXchange, an online market for replacement parts. The marketplace, slated to go live next quarter, will be open to dealers, manufacturers, suppliers, wholesalers, and other companies. Toyota and i2 will receive a fee from each transaction, as well as subscription fees from all members.

The site will be built on i2's TradeMatrix application and hosted by a third party that has yet to be chosen. Members will be able to view a single catalog with information on parts, check price and availability, and conduct transactions online. They'll also be able to tap into electronic tools for forecasting supply and demand, tracking parts in the delivery cycle, and settling finances.

The marketplace grew out of an existing relationship Toyota had with i2 to streamline its own auto-parts supply chain. Unlike Ford Motor Co. and General Motors Corp., which are building marketplaces for their suppliers, Toyota is creating a market for the entire industry. Dave Illingworth, senior VP of planning and development at Toyota Motor Sales, says the $100 billion replacement-parts market is highly fragmented and badly in need of someone to bring order and efficiencies to it. "When you recognize Toyota and i2's capabilities, this is a tremendous opportunity we can't pass up," he says.

The marketplace will operate as a separate company in Torrance, Calif., and will be funded by Toyota and i2. Illingworth won't comment on how much money the partners are putting into iStarXchange.

Thomas Koulopoulos, president of the Delphi Group, says the marketplace is a potentially lucrative new line of business for auto manufacturers. "I wonder in five years' time whether we'll be talking about Ford, GM, and the rest as automotive manufacturers at all," he says. "All industries and the dominant players in each are asking themselves the same question: Should we go out and build these new communities?"

Meanwhile, BellSouth Corp. wants to transform the telecom equipment market. Last week, it said it had formed a joint venture with Commerce One Inc. to create a business-to-business electronic marketplace. The still-unnamed site, slated to launch by July, will initially link BellSouth with its suppliers to streamline its global supply chain. BellSouth spends $16 billion per year on procurement worldwide and hopes the exchange will cut ongoing procurement costs by $1 billion during the next two to four years, says Pat Shannon, president of BellSouth Exchange Services.

BellSouth plans to open the exchange to other interested parties and competing telecom carriers later this year and will charge transaction fees. The exchange will be hosted on Commerce One's Global Trading Web and will debut with basic procurement, auction, and reverse-auction functions. "We'll quickly move to deliver supply-chain collaboration and planning services," Shannon says.

Entrade Inc., a marketplace software vendor that also owns physical car-auction operations, hopes to bring efficiencies to the used-truck market. It has teamed with Associates First Capital Corp., a financial-services company that provides financing and leasing to the trucking industry, to launch TheTruckCenter.com on March 23. The site will let members buy, sell, and finance used trucks.

TheTruckCenter.com is considering a clicks-and- bricks strategy. "Initially, the buyer and seller will have to work out delivery between themselves, but we're looking at using our seven nationwide auction sites and their subcontractors for delivery," says Carrie Shea, executive VP for business development at Entrade. "Lots of sites fail because they can't handle fulfillment."

Entrade will offer equity stakes to early participants and plans to encourage companies that use its physical auction sites to use TheTruckCenter. com. Says Shea, "You can't just build an online marketplace and assume everyone will come."

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