OR/MS Today - June 2000

June 2000

Cyberspace

B2B Exchanges:
Charity Begins at Home

By ManMohan S. Sodhi

Executives in many companies want to know what to make of B2B exchanges and whether or not they should join existing exchanges or help create new ones. Indeed, there are sound reasons for many brick-and-mortar companies to create and participate in exchanges. However, multiple B2B options, including the many exchanges being created by software companies, make it hard to figure out the "right" solution. This article recommends starting internally by improving supply chain effectiveness and visibility, and then taking a closer look at exchanges that will further these improvements.

Let us brace ourselves for a minute against the onslaught of exchange providers' breathless claims and ask ourselves the question: What is it that we really need to do now? There are at least three options:

Create a B2B exchange in partnership with a competitor or a company with a complementary product line to create the core of an exchange.
Join an existing exchange — any exchange — with your competitors, customers or suppliers.
Prepare yourself to join multiple exchanges.

These options are not mutually exclusive, so you can pursue multiple options in parallel. You might already be doing so, just to keep your options open. But where should you focus your attention? I recommend focusing on option No. 3 since that is the most flexible way to proceed in a rapidly evolving and therefore uncertain world.

The third option has the following two implications:

Fulfillment. For "brick-and-mortar" companies, fulfillment is an important issue as these companies buy raw materials, make physical products, move them through distribution channels and eventually sell them. The process may, in turn, entail e-procurement, Web-based collaboration and/or exchanges. (See my column in the April 2000 issue of OR/MS Today [http://www.lionhrtpub.com/orms/orms-4-00/cyberspace.html] about e-business solutions for the chemical industry.) Regardless of the chosen solution, you need to find the optimal mix of efficiency (minimizing the total cost of fulfillment) and responsiveness (ability to fulfill despite large changes in demand relative to expectation) in your supply chain. At the very minimum, this means looking at the quantity of inventory and location of specific products in your supply chain. Joining an exchange by itself will NOT help you survive, but finding the optimal mix of efficiency and responsiveness will enable you to participate in exchanges and help you with your existing business.

Information technology. In order to participate in exchanges, your supply chain will need to be visible outside as well as inside the company. If you do not know where your inventory is or how much of it is there at any given time, it is unlikely you will be an effective supplier. One solution is ERP (enterprise resource planning) from vendors like SAP, Peoplesoft and JD Edwards, although you may have other solutions to make the inventory, cash and orders visible and synchronized. Another kind of visibility is that of knowing the availability of inventory in the not-too-distant future with a high level of confidence. This requires good implementation of supply chain planning and optimization, i.e., APS (advanced planning and scheduling) software from a vendor such as Aspentech, i2, Manugistics, Numetrix (JD Edwards) or SAP.

Exchanges from APS and ERP vendors

Once your supply chain is in a reasonable shape, you should consider exchanges that will extend your supply chain effectiveness. Notable for such functionality are exchanges that are being put up by ERP and APS vendors. These exchanges address implications manifest in many of the exchanges. The advertised functionality may or may not be mature, but the motivation is consistent with what you need to do as described above. For instance, the OracleExchange Web site (www.oracleexchange.com) boasts an Internet-enabled supply chain model to "address the area where the most value is lost in today's [B2B] environment, inventory management." The site does so "by providing visibility into future requirements and enabling everyone to respond effectively by adjusting their manufacturing and inventory management processes to coincide with demand."

In addition to Oracle, other vendors have created exchanges and technologies that intend to improve supply chain performance. i2 has TradeMatrix (www.tradematrix.com) technology and exchange. SoftGoodsMatrix (www.softgoodsmatrix.com) is an exchange geared toward apparel and textile suppliers, retailers and brand owners. Manugistics announced Bstreamz (www.bstreamz.com) earlier this year to back exchanges with its collaborative and APS software. Then there is mySAP (www.mySAP.com) that combines hosted ERP and APS functionality with exchange features.

Just joining an exchange will not make your supply chain more effective. But once you make your supply chain more efficient and responsive, and align your business processes and IT infrastructure, joining exchanges like the ones mentioned above or creating new ones with similar features will make you an even more effective provider regardless of what B2B future may come about.

Dr. ManMohan S. Sodhi (MohanSodhi@AOL.com) is director of enterprise e-business strategy with Scient in Chicago and president of the Logistics Section of INFORMS.

Table of Contents

OR/MS Today Home Page

Lionheart Publishing, Inc.
506 Roswell Street, Suite 220, Marietta, GA 30060, USA
Phone: 770-431-0867 | Fax: 770-432-6969
E-mail: lpi@lionhrtpub.com
URL: http://www.lionhrtpub.com