Exchange

Definition

An online exchange (or marketplace) is a web space shared by suppliers and customers with the objective of promoting and conducting commerce often in a particular market sector.

The first half of 2000 saw a number of major exchanges established including:

Automotive
Computers and electronics
Aerospace
Chemicals
Utilities
Power

The term "exchange" is apt for there are many similarities with the exchanges or marketplaces of old where goods were bartered and sold. Technology has provided the wherewithal to dramatically increase efficiency and has bestowed a number of other significant advantages.

A remarkable feature is that the founders of exchanges are typically archrivals in their respective markets. The attraction is such that fierce competitors are willing to invest large sums (e.g.$100M) to establish an exchange.

Participants

There are no hard and fast rules but typically the end-to-end services provided by an exchange will be open to all parties in the supply-chain process. This could include:

Customers / Consumers
Manufacturers
Contract manufacturers
Suppliers
Distributors

The exchange provides the facility for the participants to manage most or all of their e-procurement purchases and sales.

One feature difficult grasp is the sheer scale. It is estimated that some of the larger exchanges will have a throughput measured in hundreds of billions of dollars.

Perceived benefits

Dr Hau Lee, professor of Operations & IT at Stanford Business School made the following comments in connection with one of the electronic exchanges:

"The creation of such an exchange can improve supply-chain efficiency tremendously through cost reduction, timely transactions, inventory savings and higher-value services. But most importantly it will enable supply-chain partners to fundamentally redesign their business process and create new business opportunities from end to end. This is a major step toward a virtual economy for the high tech industry."

Where do the benefits come from?

In addition to delivering the traditional benefits of the Web, such as continuous global reach and open industry-standard interfaces, the new high-tech exchanges are expected to:

lower manufacturing and purchasing transaction costs through process efficiencies;
reduce levels of inventory throughout the entire supply chain by better matching supply and demand via the online marketplace;
increase customer satisfaction by improving the ability to deliver products more quickly and predictably;
provide expertise on supply chain "best practices" to help participants achieve better results from product design to customer delivery.

Generally each exchange will strive to use best-in-class technology to deliver a variety of services to participants, including open sourcing, e-catalogues, auctions and dynamic pricing, supply planning and logistics. Usually the founders who typically have already developed services for efficient buying and selling over the Internet provide some part of this capability. An exchange can therefore often deliver immediate value to all members. That being said the technology in certain respects is immature and still developing. Teething problems are to be anticipated but equally further benefits should accrue with time.

What drives the benefits?

Phrases such as "by leveraging the power of the Internet to revolutionize supply chain operations" are common parlance amongst exchange builders. This implies the following:

Increased reach - access to new customers and suppliers and to alternative trading vehicles
Improved execution - providing high performance, non-stop, web-based access to an entire array of supply chain e-services with real-time interaction
Greater accuracy - improved demand and supply visibility to better meet customer requirements
Reduced transaction costs - linking customers to front end processes, web enabling back-office and back-end procedures can lead to substantial reductions in administrative costs

A major computer/electronics exchange specified three categories of services: procurement in a global marketplace; supply chain management and optimisation; and collaborative product development.

The initial offerings of the exchange will include:

Auctions
Catalogue management
Value-added services (e.g. News Ticker)
Market place administration (e.g. workflow, selected audience)

However future offerings will include:

Demand forecasting
Inventory visibility
Capacity utilization
On-line supply commits
Reverse logistics
Additional value-added services (factoring, escrow)
On-line conventions
Trading agents
Collaborative product design services

Now we can better understand what the fuss is all about. How well these exchanges will work is not yet known. What is clear is that some serious players with serious money and a will to succeed support them. If you move in one of the sectors covered but remain a non-participant life could become exceedingly uncomfortable very quickly.

CJF
June 2000



	So what is an Exchange or Marketplace Definition An online exchange (or marketplace) is a web space shared by suppliers and customers with the objective of promoting and conducting commerce often in a particular market sector. The first half of 2000 saw a number of major exchanges established including: Automotive Computers and electronics Aerospace Chemicals Utilities Power The term "exchange" is apt for there are many similarities with the exchanges or marketplaces of old where goods were bartered and sold. Technology has provided the wherewithal to dramatically increase efficiency and has bestowed a number of other significant advantages. A remarkable feature is that the founders of exchanges are typically archrivals in their respective markets. The attraction is such that fierce competitors are willing to invest large sums (e.g.$100M) to establish an exchange. Participants There are no hard and fast rules but typically the end-to-end services provided by an exchange will be open to all parties in the supply-chain process. This could include: Customers / Consumers Manufacturers Contract manufacturers Suppliers Distributors The exchange provides the facility for the participants to manage most or all of their e-procurement purchases and sales. One feature difficult grasp is the sheer scale. It is estimated that some of the larger exchanges will have a throughput measured in hundreds of billions of dollars. Perceived benefits Dr Hau Lee, professor of Operations & IT at Stanford Business School made the following comments in connection with one of the electronic exchanges: "The creation of such an exchange can improve supply-chain efficiency tremendously through cost reduction, timely transactions, inventory savings and higher-value services. But most importantly it will enable supply-chain partners to fundamentally redesign their business process and create new business opportunities from end to end. This is a major step toward a virtual economy for the high tech industry." Where do the benefits come from? In addition to delivering the traditional benefits of the Web, such as continuous global reach and open industry-standard interfaces, the new high-tech exchanges are expected to: lower manufacturing and purchasing transaction costs through process efficiencies; reduce levels of inventory throughout the entire supply chain by better matching supply and demand via the online marketplace; increase customer satisfaction by improving the ability to deliver products more quickly and predictably; provide expertise on supply chain "best practices" to help participants achieve better results from product design to customer delivery. Generally each exchange will strive to use best-in-class technology to deliver a variety of services to participants, including open sourcing, e-catalogues, auctions and dynamic pricing, supply planning and logistics. Usually the founders who typically have already developed services for efficient buying and selling over the Internet provide some part of this capability. An exchange can therefore often deliver immediate value to all members. That being said the technology in certain respects is immature and still developing. Teething problems are to be anticipated but equally further benefits should accrue with time. What drives the benefits? Phrases such as "by leveraging the power of the Internet to revolutionize supply chain operations" are common parlance amongst exchange builders. This implies the following: Increased reach - access to new customers and suppliers and to alternative trading vehicles Improved execution - providing high performance, non-stop, web-based access to an entire array of supply chain e-services with real-time interaction Greater accuracy - improved demand and supply visibility to better meet customer requirements Reduced transaction costs - linking customers to front end processes, web enabling back-office and back-end procedures can lead to substantial reductions in administrative costs A major computer/electronics exchange specified three categories of services: procurement in a global marketplace; supply chain management and optimisation; and collaborative product development. The initial offerings of the exchange will include: Auctions Catalogue management Value-added services (e.g. News Ticker) Market place administration (e.g. workflow, selected audience) However future offerings will include: Demand forecasting Inventory visibility Capacity utilization On-line supply commits Reverse logistics Additional value-added services (factoring, escrow) On-line conventions Trading agents Collaborative product design services Now we can better understand what the fuss is all about. How well these exchanges will work is not yet known. What is clear is that some serious players with serious money and a will to succeed support them. If you move in one of the sectors covered but remain a non-participant life could become exceedingly uncomfortable very quickly. CJF June 2000