InformationWeek

September 18, 2000

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More on exchanges:

Integration Tools Suit Expanded For Exchanges (9/11/00)

Electronic Buyers' News Strongly backed e2open.com ready to go (9/11/00)

InternetWeek Want To Trade With E-Marketplaces? (9/11/00)

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PartMiner executives feel their company's greatest value--and where it will generate revenue--is locating and procuring hard-to-find supplies, a service it calls PartMiner Direct. In that sense, it's not veering from its traditional revenue model at all by moving online. "We don't attempt to provide lower prices than you would find offline," says PartMiner chief technology officer Mark Schenecker. "We fund the site by trying to get the opportunity to serve you in a shortage situation."

For example, Matco Electronics uses PartMiner Direct services to liquidate its customers' obsolete inventory or find out-of-production supplies for legacy products, but talks to PartMiner personnel in person or via telephone for 80% of its transactions; PartMiner, in turn, posts the inventory on its Web site. Matco's attachment to doing business by phone is an indication that many customers aren't willing to move their business online. PartMiner and NECX.com have not overcome one major obstacle online: Buyers want to negotiate, not pay a listed price.

Kathy Drake, president of Harrington Signal, says PartMiner is valuable as an information source and for finding rare parts, but not for routine buying. Harrington Signal, a $19 million contract manufacturer for the telecommunications, industrial controls, and medical-device markets, uses Part-Miner to gather product information and find discontinued parts, which she says has improved her company's purchasing process by decreasing the time it takes to pull information from many sources and find suppliers. But the company buys most goods offline. "We use them to find availability, then we call suppliers directly to negotiate the price," says Drake. "PartMiner puts prices out there, and the prices are probably legitimate, depending on what level you're buying. If you can offer vendors volume purchasing, you can get into a different price bracket."

To enable some price negotiation, PartMiner recently introduced the ability to submit online request for proposals through Free Trade Zone. But it's not placing a lot of stock on the value of that service, which it offers for free while charging for the PartMiner Direct service.

NECX.com, which stands for New England Circuit Exchange, doesn't offer online negotiation or auction capabilities yet, but plans to roll those services out by the end of the year and charge fees for them. An electronics broker since 1980, NECX.com was acquired in January by VerticalNet, which owns and operates 57 business-to-business marketplaces and information Web sites. NECX.com agreed in July to acquire American IC Exchange, an electronics broker in Aliso Viejo, Calif., to extend its presence on the West Coast.

Today, users of the Global Electronics Exchange can submit requests for quotes and sales offers to NECX .com's trading agents via the Web. The rest of the transaction, including identifying a trading partner and fulfilling an order, happens through NECX.com traders in their offices in Peabody, Mass. By year's end, NECX.com plans to expand its marketplace and business model to enable direct transactions between buyers and sellers via online auctions and request for quotes, with no intervention by NECX.com trading agents. It also plans to provide complementary online services, such as shipping, international logistics, inspections, and integration with client's back-office environments.

Photograph by James Elliot However, some remain skeptical that brokers can use online channels to extend their role in the supply chain. Brokers, they say, deal in exceptional situations, not day-to-day inventory management or long-term supply-chain relationships. "They're in the business of helping you with surplus and excesses," says Bernie Uhlich, director of global supply-chain management and E-business at Celestica Inc., the world's third-largest electronics contract manufacturer. "They don't offer all the capabilities required for planning, communication, auctioning, logistics, and transportation."

Enter The Giants
Celestica manufactures complex printed circuit assemblies used in computer servers, workstations, peripherals, and communications devices for electronics makers such as Cisco Systems, Hewlett-Packard, and IBM. Rather than brokers' exchanges, it's keeping a closer eye on the competing online exchanges being built by industry leaders such as Compaq, HP, and IBM, which promise a shared Internet platform that lets supply-chain partners collaborate on everything from design to forecasts to production.

"It's about creating a community of trading partners online to quickly communicate a change in direction so everyone can take their cue and respond," says Uhlich. EHitex, an online marketplace formed by Compaq, HP, and 13 other top electronics manufacturers in the United States and Asia, is promising to deliver this kind of broad and sophisticated E-marketplace for the high-tech electronics space. A similar concept is in the works by rival online marketplace E2Open run by Acer, IBM, Hitachi, LG Electronics, Lucent Technologies, Matsushita Electric Industrial, Nortel Networks, Sea- gate Technology, Solectron, and Toshiba. Each went live with basic auction and quote-request capabilities last month, with plans to do much more.

Right now, however, eHitex doesn't offer much more than NECX.com and PartMiner do--allocation of inventory in shortage situations. Since going live on Aug. 1, eHitex has conducted more than 20 auctions for spot buys and contract bids for its founding members.

But even that service can be a life-saver, as Hewlett-Packard recently learned. HP was going to run out of flat-panel displays, putting it at risk of having to shut down its production line. The original supplier couldn't produce more, so HP posted an anonymous request on the eHitex site and located the needed parts within four hours--from a competitor that had a surplus of flat-panel displays. "These people live by their pagers and avoiding down lines," says eHitex co-CEO Keith Melbourne, who formerly worked at HP.

Yet Celestica hasn't jumped onboard eHitex, E2Open, or any other online marketplaces. Celestica is leery of cooperating with competitors and pushing its products toward commodity pricing. Its two largest competitors--Solectron and SCI Systems--are participating in E2Open or eHitex. Celestica is focused instead on participating in private marketplaces operated by its largest customers to coordinate market forecasts, production cycles, inventory levels, design collaboration, and logistics in a closed, private environment.

Uhlich says the open exchanges make every company seem like equals, since they're open to any qualified user. Closed trading communities--such as one run by Dell, for instance, for its supply-chain partners--are open only to major suppliers. That's where Celestica is focusing its efforts for improved collaboration and closer customer relationships. "If you want customer intimacy, would you go to Times Square?" asks Uhlich. "At the end of the day you have to establish a one-on-one relationship, and that's easier on a private exchange."

EHitex insists it's not interested in squeezing suppliers solely on price, and points to the participation of suppliers and competitors as proof. "It's not a mechanism for driving price down," says co-CEO Melbourne. "It's about efficiency. Our problem is that we have very short product life cycles. It's about speed and efficiency, not price. Ultimately, it's about inventory."