Exchange build-outs: hype or hope?
Public exchanges went bust. Can private exchanges fulfill the promise of B2B collaboration?
By Roberto Michel, Editor -- Manufacturing Business Technology, 3/1/2002 12:00:00 AM
Talk to Memec's Colin Black about why his company decided to deploy an Internet-based private trade exchange, and you'll hear about business goals, not technology components. Even though Black is an information technology (IT) executive, and understands the mix of new IT infrastructure pieces needed for an exchange, he says executives aren't after a technology migration.
"The decision process behind a private exchange is a matter of attaining goals such as improving managers' access to information, supporting collaboration with partners, and simply making operations more efficient," says Black, Memec's vice president of global information systems and technology. "No one really says, 'We need a private trade exchange.'"
Yet a private trade exchange is what Memec has built, using an enterprise application integration (EAI) software layer and other technology components. Initially, the Thames, U.K.-based global distributor of semiconductors used exchange technology to aggregate data from multiple internal systems, and now Memec is beginning to use the exchange for collaboration with key suppliers such as Santa Clara, Calif.-based chip manufacturer Intel.
Other enterprises, including manufacturers Komatsu Mining Systems and Unifi, also use private exchange technologies for collaboration and commerce. The movement toward private exchanges, however, is still in its infancy. New York-based IT research firm Jupiter Media Metrix found last year that only 15 percent of large enterprises had deployed private exchanges.
The private exchange concept came to the forefront after scores of public exchanges floundered or were acquired. The thinking is that private exchanges are a more suitable environment for collaboration than public exchanges. Under the concept, individual enterprises set up a platform of infrastructure software and applications for collaboration and commerce.
But in practice, private exchanges aren't so simple. Issues range from having the right mix of e-Business infrastructure software to power the exchange, as well as appropriate collaborative applications to handle tasks that can range from sharing forecast and product content data to tracking the details of work-in-process on plant floors. The ability of end-user organizations to properly assemble effective exchange platforms could determine how much benefit the economy draws from this next wave of the B2B era.
Understanding the e-Business infrastructure components and what they each enable is a task in itself. "Exchanges have different parts, and they are evolutionary and flexible," says Bob Schecterle, a vice president with PeopleSoft, a Pleasanton, Calif.-based enterprise applications vendor. "A portal, for instance, provides roles-based access for users of a private exchange, but it's not the only component. If it's a buy-side exchange, procurement or supplier relationship management applications will be needed as well."
Pam Lopker, president and co-founder of Carpinteria, Calif.-based enterprise applications vendor QAD, agrees that exchanges aren't monolithic in purpose or in architecture. "We see exchanges being formed to support a number of purposes, including design collaboration, order fulfillment, purchase order processing, supply chain connectivity, and customer service," Lopker says.
The private trade exchange opportunity is large enough that broad-based vendors of enterprise software suites have developed solutions that support private exchanges. Some niche vendors also target the market for private exchanges. The result is a fragmented market, in large part because of the mix of technologies that power exchanges, and also because most companies that decide to roll out exchanges don't try to build in every possible function right from the start.
Enterprise aggregator
Memec's exchange—built with software from Denver-based enterprise applications vendor J.D. Edwards—integrates with four custom legacy systems. According to Black, J.D. Edwards' eXtended Process Integration (XPI) solution serves as the guts of the exchange infrastructure.
"XPI allows us to hook our disparate legacy systems into a single communication hub very quickly," says Black. "Once a system is integrated into this communication hub, it has connectivity to every other system and message already plugged into the hub."
Black says that XPI offers classic EAI tools such as adapters—which are interfaces to systems and messages—as well as business process mapping tools used to configure process flows between systems and messages. "I couldn't begin to think of tackling the integration problem without these types of tools, even internally, and on an external basis, it would be nearly impossible," says Black.
XPI supports the RosettaNet standards for e-Business collaboration in the electronics industry, says Black. The ability of XPI to connect to different types of messages, including eXtensible markup language (XML) and electronic data interchange (EDI), is a major benefit of the solution, he adds. "People often overlook that an exchange not only involves tying systems together, but also the ability to bring in different types of messages and manage them," says Black.
Memec is in the process of implementing J.D. Edwards' OneWorld enterprise resources planning (ERP) system as its main business system. Once OneWorld goes live companywide, says Black, he expects Memec will see "a jump" in the timeliness of information available via its exchange, since OneWorld manages transactions closer to real time than Memec's legacy systems.
Black says it should take only about one year to achieve exchange participation from at least 80 percent of Memec's suppliers. "Our partners will come on board very quickly with this," Black says.
Memec, however, isn't using software from just one vendor for all its B2B projects. For a customer-facing self-service portal, Memec turned to personalization software from Redwood City, Calif.-based Broadvision.
J.D. Edwards gained some of the base EAI capabilities behind XPI via a licensing agreement with Fairfax, Va.-based integration software vendor webmethods, although since that deal, J.D. Edwards has enhanced XPI with preconfigured business process flows and content. The move exemplifies a trend among large enterprise system vendors to acquire their own e-Business infrastructure technology.
Infrastructure & applications
Large enterprise system vendors may be in the best position to offer a mix of e-Business infrastructure software and collaborative applications to manufacturers pondering exchange projects. In some cases, enterprise system vendors partner with e-Business middleware providers such as IBM Corp., Armonk, N.Y., to round out their exchange offerings.
QAD offers an application suite called eQ as a private exchange solution. The suite features a commerce relationship management tool to map out and manage collaborative relationships, while its application functions target customer and supplier relationships, sales and purchase orders, replenishment, and vendor-managed inventory. "We call it a private exchange for orders," says Lopker.
Redwood Shores, Calif.-based Oracle Corp. is another enterprise applications vendor offering private exchange solutions. Sean Rollings, a senior product marketing director for Oracle, says supply chain collaboration will be the centerpiece of many private exchange hubs, but some exchanges will focus on collaborative product lifecycle management (PLM).
Rollings says Oracle has developed a PLM solution suitable for exchange environments, leveraging its software for project management, along with Oracle's expertise in file management from its database business. Oracle's move into the PLM arena puts it up against the likes of best-of-breed PLM players such as Needham, Mass.-based PTC, as well as traditional rival SAP, the Walldorf, Germany-based enterprise software giant.
However, says Rollings, PLM is but one possible "killer app" for private exchanges. "Deciding the focus on a private exchange comes down to the pain points and area of opportunity for each individual company," he says.
For Vernon Hills, Ill.-based Komatsu Mining Systems, the pain point was purchasing, says Jack Dean, Komatsu Mining's manager of business applications support. The company, which has a manufacturing facility in Peoria, Ill., has deployed a collaborative hub based on software from The Baan Co., Herndon, Va. The company also has implemented Baan's ERP system to run its internal business operations.
"We're using the site as a communication and collaboration tool with our suppliers, sharing information regarding purchase orders and forecasts," says Dean. The information exchange includes access to "open order reports" that show suppliers exactly which purchase order line items still need to be fulfilled. Komatsu Mining also shares forecast reports with authorized suppliers.
A Baan product called iBaan B2B Server provides supplier connectivity and communication for the site, says Dean. This server-side piece of software automates transmission of XML-based transactions between KMS and its suppliers via the Internet. Additionally, adapters that Baan calls Business Object Interfaces make it possible for users of the collaboration site to access information directly from KMS's Baan ERP system.
Dean and other KMS managers shy away from calling their collaboration site a private exchange, more typically referring to it as a supplier portal. But the benefits of KMS's collaborative platform are hard to dispute. For example, before the site was launched, it was taking KMS an average of one week from the time a new material plan was issued, until new requirements reached suppliers. Today, the communication of new requirements is almost immediate. More impressively, KMS reports that since using the supplier hub, lead times for parts delivered from its key suppliers have been cut in half, dropping from more than an average of 60 days, to an average of 30 days.
The whole, not pieces
A number of start-up software companies also are taking aim at the private exchange opportunity. "We offer a transport and connectivity piece for exchanges, but we also offer collaborative supply chain planning," says Ted Smykla, a senior vice president with Newport Beach, Calif.-based IPNet, a B2B commerce software vendor.
IPNet's infrastructure component for exchanges is called eBizness Transact, while its eBizness Collaborate product supports structured collaboration initiatives such as collaborative planning, forecasting & replenishment (CPFR) programs in the consumer goods industry. While some companies implement both the transaction and collaboration pieces, others, such as textile manufacturer Unifi, choose to implement just one.
Greensboro, N.C.-based Unifi selected eBizness Transact to support trading partner connectivity as part of Unifi's private exchange, called Fyberserv. "Primarily, we'll use the IPNet solution as a communication tool for EDI and other forms of information we want to move electronically," says Mark Sidden, a senior IT manager at Unifi.
Unifi expects the solution to eliminate unnecessary costs in a number of areas, from EDI value-added network (VAN) fees, to costs associated with paper-based processes. Ultimately, says Sidden, IPNet's solution bolsters the currency of information on Fyberserv. "That EDI information will integrate with our back-end business applications so it can become part of the repository of information we have for doing business with partners," says Sidden.
Rather than calling Fyberserv an exchange, Unifi likes to think of the site's capabilities as a set of on-line tools for managing business with trading partners. And while the IPNet transaction engine now is a component of that set of tools, Sidden says that Unifi custom-built much of the functionality behind Fyberserv, including its portal and integration to back-end systems.
Via integration between Unifi's ERP software from Oracle, and manufacturing execution software from Camstar, Campbell, Calif., Sidden says that authorized Fyberserv visitors can even drill down into detailed manufacturing status information. "Ultimately, Fyberserv is a collaboration tool," Sidden says. "The value of information is limited if you can't share that information and disseminate it quickly to partners."
Collaboration may be the end-goal for most private exchanges, but analyst firms warn that selecting the right means to that end can be tricky. Boston-based AMR Research, for instance, points out in a recent report that exchanges have five infrastructure elements: analytics, business process workflow; content management, identity management, and integration.
But once enterprises have the right infrastructure in place, and roll out applications to support specific business processes, the potential benefits of private exchanges cut right to the heart of e-Business. As Memec's Black puts it, "Our site is about efficiency in sharing information with partners, and ultimately, it supports a more advanced trading methodology.
| FOR MORE INFO: | ||
| Baan: www.baan.com | Camstar: www.camstar.com | IBM: www.ibm.com |
| IPNet: www.ipnet-solutions.com | J.D. Edwards: www.jdedwards.com | Oracle: www.oracle.com |
| PeopleSoft: www.peoplesoft.com | PTC: www.ptc.com | QAD: www.qad.com |
| SAP: www.sap.com | Unifi: www.unifitech.com | webmethods: www.webmethods.com |
