InformationWeek

September 18, 2000

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Electric Shock

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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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Three high-profile technology companies are staying out of the online marketplace scene for competitive reasons--Cisco Systems, Dell, and Intel. The companies consider their supply-chain business processes and technology competitive advantages and aren't about to share their secrets of success with rivals. Dell has set up a supply-chain extranet to exchange component forecasts and production schedules with 35 to 40 of its top suppliers, which provide Dell with 90% of its computer components. "We like working directly with suppliers and customers," says a Dell spokesman. "We've opted to stay out of the exchanges. It's not clear whether there's a benefit for us."

With only 250 bidders and 50 buyers registered on eHitex, Uhlich also believes the audience of users and the functional capabilities of public online marketplaces are so far too limited to warrant Celestica's participation. He sees promise in public online marketplaces but likens their development to the advent of air traffic control systems in the early part of the 20th century. That system took years to build due to the complex coordination of different standards and communication mechanisms. "You can't put these things in place overnight," says Uhlich. "We still need standards, consistent rules, and more participants to effectively create a marketplace."

EHitex is working to broaden its services. It's testing online logistics services to consolidate overseas shipments to cut costs and increase frequency of international shipping. It expects that service sometime in November. It's also working on adding financial services such as letters of credit, and product inspection services via the site, but has yet to name any partners in those areas. EHitex plans to eventually offer hosted supply-chain management, collaborative forecast, and product design collaboration applications for the private use of its members and their direct trading partners. Those services are expected in January or February.

EHitex hasn't selected its software platform yet, which puts it slightly behind E2Open, which is running on software from Ariba Inc. and i2 Technologies Inc. But plenty of work lies ahead for the exchange. E2Open is already live with a parts database and some auction capability, and plans to offer supply-chain collaboration projects this fall. Those projects include a component catalog and applications that allow sharing of capacity scheduling information. EHitex is also planning to expand further into Asia, including Japan, Korea, Taiwan, and Singapore in the next 90 days--important additions, given the global nature of the electronics business.

However, exchange executives understand the challenge of translating their offerings into several languages. "When you get to the level of a procurement department of a Japanese equipment company, there isn't a whole lot of English going on," says Paul Sterne, CFO of E2Open and a former IBM executive.

Buyers aren't likely to do much more than simple parts procurement on these exchanges for the next six months, predicts Forrester Research analyst Navi Radjou. He says supply-chain planning and optimization capability won't be ready via trading exchanges until the first half of 2002, and that the ability to truly collaborate with trading partners on product designs via public marketplaces won't happen until the end of that year.

"It's about building trust," says Radjou. "For your average, conservative manufacturer, you need to test the water. First they'll trade parts and components. Plus, nobody knows how the software will operate in a many-to-many environment. There will be a long trial period before they're ready for prime time."

Schenacker Photograph by Eward Santalone E2Open and eHitex could help overcome the technical, cultural, organizational, and competitive challenges by rallying enough industry players to join their crusade. By stomping out some of the supply-chain glitches that plague the electronics industry today, it could mean brokers and other companies that thrive on supply-chain excesses and surpluses lose their relevance. Or, it could create opportunity for those brokers, if the industry consortium are not seen as independent or effective. The buzz factor for business-to-business E-commerce has tempered, and the industry is testing which sites can really solve problems.

"Earlier this year, people were asking us, 'Why aren't you part of an online marketplace?' Sanity has come back into the picture," says Uhlich of Celestica. "People are asking, 'What is my business problem, and how can these tools help me solve them, and bring value to my customers?'"

Forrester Research predicts that within three years, there will be less than nine E-marketplaces serving the electronics industry, instead of the 50 today. The survivors will be those that have answers for Uhlich's questions. --With additional reporting by Chris Murphy