Firms Embrace Savings Potential of Exchanges

The Internet, and the B2B opportunities it presents, has propelled a new breed of entrepreneur to the forefront. Each day technology platforms are integrated into new and different businesses — all designed to quickly, easily and efficiently provide any number of industries with a niche service or product.

Currently, thousands of manufacturers, distributors and retailers are using hundreds of online marketplaces to simplify the traditional supply chain. That trend is only destined to grow, according to market research firm GartnerGroup.

As the Internet revolutionizes the way business is done, GartnerGroup predicts a B2B explosion that will net online businesses 37 percent, or $2.71 trillion, of B2B sales worldwide in 2004.

Yet, every revolution has its casualties. Therefore, the research firm dually predicts that post-explosion reconstruction will form a new business landscape, built on the wins and losses of today’s players. “By the end of the forecast period, B2B e-commerce will have produced a fundamental shift in power balances in businesses,” according to Triggering the B2B Electronic Commerce Explosion, a GartnerGroup forecast analysis.

The category is indeed facing choppy waters, said Peter Osborne, e-business audit partner at Deloitte & Touche.

“Over the next two years, businesses will need to figure out what sort of model they want to work with,” he said. “It is a precursor to future success.”

To have a successful site, according to Osborne, businesses need to focus on providing e-solutions while offering domain expertise.

“It’s about delivering value,” he said. “Further, businesses need to find the revenue model that reflects the value being delivered.”

Osborne believes there are two types of models to choose from: the hub and spoke model and the spider web model.

“The hub and spoke model is centric by nature,” he said. “The hub and spoke model provides a supply chain and an opportunity for collaborative engineering between buyers and suppliers. This model tends to focus on pricing and, to make this model work, content is an attractive feature to draw suppliers back to the site. Whilst pricing is important, often a committed time of delivery is a crucial decision variable for the buyer.”

In the spider web model, customers and suppliers interact with no central hub. “Online transactions are what keep these models strong,” he said. “Everyone has the ability to communicate in a bi-directional manner. This sort of architecture allows information to flow up and down the supply chain, which helps in demand forecasting.

“With the flow of information provided, companies can help plan and forecast what is coming down the pike and predict oncoming bottlenecks,” he concluded. “This type of exchange is more responsive overall and is more likely to scale as business changes in response to the marketplace.”

Insider Review reported that “e-commerce businesses come and go, start-ups, retailers, fads and freaks seem to leave as fast as they enter the arena. But the mainstays, the ones that will survive the test of time, are the businesses that provide the medium for all others to function.”

One of the most explosive areas are online exchanges which allow businesses to trade a variety of goods and services. Among them are UnusedBandwidth.com which seeks to help businesses make better use of high-speed connections which may only be in use a portion of the day.

“We help drive prices down,” said company President Nicholas Marino. “Our system is good for buyers and sellers. It is easy to use and it is based entirely upon backroom software, which is available at no cost.”

The service allows bandwidth from any directly-connected computer to be sold across the Internet.

“Our service is part of a larger trend by several companies towards optimization of the Internet’s infrastructure,” Marino sai

d. “If you own a broadband connection to the Internet, the amount of bandwidth wasted each month may surprise you. Let’s say, for example, you have a 1 megabit DSL connection. Are you using 1 Mbps every hour of every day? Probably not. Why not earn money on the unused portion of your connection? “For most businesses, bandwidth utilization drops significantly on nights and weekends. Also, many companies order lines with higher capacity than they actually need, in anticipation of future growth.”

Marino estimates that more than 50 percent of T1, DSL and other broadband Internet capacity in the United States goes unused. “A simple software installation makes a computer a “UB Resource” — in effect a server within the UB network. Participation in the UB network, either as a buyer or a seller, does not require extra equipment. Bandwidth is sold in the background, almost invisibly, so computers can continue to operate normally.

Sellers control the amount of bandwidth they can spare and define a detailed schedule of availability. A business can specify that 75 percent of their bandwidth be made available for sale during late-night hours and 20 percent during the day.

Bandwidth sellers benefit by earning money from a resource that would otherwise go to waste, he emphasized. “Buyers profit by purchasing bandwidth at deeply discounted rates. “We can offer bandwidth to busy web sites for less than half the cost of a traditional connection,” said Marino. The current rate is about $133/mbps.”

Band-X also provides bandwidth exchange, but in an auction format.

“Clients execute their bandwidth business using two methods: the posting of offers and bids on our site, where members can anonymously post offers of capacity or requirements to which other members respond. Our team assesses the commercial and technical issues before bringing the parties together, said Donald Noonan, director of bandwidth sales and trading.

“The second method is a reverse auction. Our team works with the buyer to define the requirement and to pre-qualify possible providers,” he continued. “An anonymous and confidential reverse auction is held during which a number of suppliers will bid online over a fixed time period, usually two hours. The price goes down throughout the auction.”

Noonan is confident that his company will remain strong for the duration. “We have proprietary software that facilitates the buying process.” Band-X has five active trading floors: bandwidth, co-location, IP routed, switched and recruitment.

GartnerGroup predicts that communication services, such as bandwidth marketplaces, will grow as buyers and sellers identify new ways to increase the efficiency of their legacy telecommunications infrastructures.

Firms offering services used by a wide variety of businesses have also moved on. Those include Avolo, a online marketplace for aircraft parts and services.

“We offer a number of services to help buyers and sellers improve efficiencies, increase profitability and grow their business,” said Catherine Pepper, chief strategy officer, Avolo. Offerings include quote requests which enable airlines to quickly locate required parts using online solicitations for competitive bids.

In development are a variety of solutions, including auctions, swaps, a certification databank, inventory planning, financial services such as escrow, utility tracking and maintenance and scheduling.

“In our first two weeks of going live, commercial airlines and suppliers conducted more than $1 million in transactions through Avolo,” she said. “E-commerce is expected to save the aviation industry $165 to $195 million in direct costs, and $825 million to $1.9 billion in indirect costs annually.”

To keep the site running efficiently, Avolo plans to track online purchases and their deliveries via buyer and seller rating systems.

“Currently buyingpr

actices in the parts aftermarket are are inefficient, error-filled and repetitive,” she said. “As a result, an increasing number of airlines, OEMs, suppliers and resellers are investigating e-commerce strategies that streamline the purchasing process.

“This site really proves its worth in the area of buying used parts, ” she concluded. “Though our services, potential buyers will know everything there is to know about a part before it is purchased, including how many cycles are on an engine and who last repaired it. We want to be methodical and productive regarding what we sell.”

The building/construction marketplace is another relatively new and potentially lucrative, area of online focus. Vendquest is an e-commerce B2B marketplace for buyers and suppliers in the construction, heavy equipment and trucking industries.

“We are bringing e-commerce to a sector of the economy that hasn’t truly begun to enjoy the benefits of information technology and the Internet. We believe that the products, services and tools available through our site will revolutionize the marketplace,” said Joe Weinhoffer, president and chief executive officer, Vendquest.

“We offer procurement of industrial production goods, supplies and related products,” he added. “We provide efficient and reliable online purchasing services to an industry sector that spends in excess of $100 billion annually in the U.S. on production goods, industrial supplies, office supplies and related equipment.

The site furnishes industrial buyers with an extensive interactive catalog of products and services for each of its target industries. “Currently more than one million replacement and maintenance parts are available for purchase online,” says Weinhoffer. “Beyond the huge product selection, we integrate with the buyer’s and seller’s back-end legacy systems thereby facilitating a secure, paperless transaction that significantly reduces errors and record-keeping time and costs.”

The New York Times News Service reports that many construction executives regret that their industry was slow to embrace the Internet, even though the medium offers a ready solution to their thorniest problem — how to coordinate the efforts of what sometimes amount to hundreds of separate teams across the lifespan of a project as the original plan evolves, doorway by redesigned doorway, conduit by rerouted conduit.

Cephren, an online workplace designed specifically for the construction industry, helps executives communicate with partners and subcontractors as well as buy materials and bid for jobs.

“The site provides a suite of web-based services,” said Tim Perini, Cephren’s vice president of business development and marketing. “Our main products are ProjectNet, which ties together multiple parties within a project, such as the construction manager, subcontractors and material distributors. The service keeps them in constant contact and allows them to view blueprints online. MarketNet is our marketplace for buyers and sellers of construction products and services.

“We also offer PrintNet, a service that allows people to print documents, such as blueprints. Through this service, a print work order is issued, which is then routed to a reprographic shop where it can be picked up,” said Perini. “This saves a lot of cost. In the U.S. alone, the construction industry annual spends more than $500 million on air courier services.”

There are different fees for those who use the different services. ProjectNet is a subscription model, PrintNet employs a per transaction fee and MarketNet is a combination of transaction-based and flat fees.

According to Perini, cephren.com has already proved its value to the industry.

“To be successful, you need to create a product that makes other people’s businesses better, faster and easier. Not only do we offer a servic

e and a cost savings, we eliminate paperwork and process efficiencies. Before we went online, the industry was consumed by the fax machine. We have created tools that open up the entire marketplace.”

Ironspire provides construction teams with a project-specific extranet through which remote team members can communicate and access up-to-date documents.

“We provide a real-time decision support environment for commercial construction project teams,” said Robert Ellis, chief executive officer, Ironspire. “We connect everyone involved in a project, ranging from business owners, architects, contractors and others. We offer them a robust document management system that can be archived and retrieved.”

Further, the service alerts users affected by changes in real-time via email or a pager. “This way, if a project member is on a plane, he still has access to changes,” says Ellis.

Ellis asserts that Ironspire and its technology is the wave of the future. “Until now, the construction business had no willingness or reason to change,” he said. “But we are offering a more efficient way in which things are managed. We provide a more conclusive business service. By bringing the efficiencies of Web-based and mobile computing to the whole construction industry, our project management solutions will generate a huge savings to general contractors and owners.

However, he adds, it is service, not cost savings, that customers seek. “Customers are not driven by price,” he said. “Over time, low cost brings no customer loyalty.”

The Ironspire service is offered on a subscription basis, with pricing determined by the number of users and the length of the subscription, which is typically the lifetime of the project.

MRO.com, a secure site aimed at maintenance, repair and operations, launched this month.

“We link online communities of MRO suppliers and buyers to a group of Internet-based desktop requisition and online procurement software products that dramatically reduce purchasing and inventory costs,” explained Colleen McCretton, the company’s product marketing manager. “We have established a secure, global, e-commerce network capable of handling multiple languages, currencies and tax codes.”

The site has three main focuses: content, commerce and community. “We are actively seeking customer input in determining areas of interest and product recommendations,” she says. “We have hooked our site in with the community providing a variety of services, which will include such things as message boards. Through this Web site, we are able to leverage our industry and bring our expertise to the online community

“We developed an extremely robust B2B marketplace that provides a number of solutions,” she continued. “We address the inherent problems of searching for diverse and complicated M&R products through an easy-to-use search tool based on Intermat’s integrity and standardizing technology. Intermat’s Standard Modifier Dictionary technology, a widely used standard for the description for MRO products, helps suppliers accurately create and maintain their MRO catalogs.”

McCretton is confident that mro.com has what it takes to make it in the long run. “Many industrial marketplace portals are failing to attract companies because they do not effectively address the basic order and fulfillment processes that allow supply chains to run efficiently,” she said.

“Sites also need better ways for customers to monitor systems and pull transaction data onto the Web. Logistics, globalization, content aggregation and financial services such as credit, billing payment and taxation all need to be better integrated and deployed into B2B exchanges. Ultimately we build a community of interest covering the entire spectrum of MRO products, supplies and information. This data will include equipment and spare part performance, failure

historiesand industry-specific buying patterns”

Providing goods to retailers and/or e-tailers, is another means of expanding the B2B marketplace.

Sports-expo.com, aimed at sporting goods industry professionals, enables registered users to purchase goods online, view multi-vendor product catalogs, apply for credit, access relevant industry-related articles, track industry stocks, pursue career opportunities and interact with peers. A virtual trade show is presently in the works.

“This is the first site offering the sporting goods industry an open marketplace with daily access to targeted industry content, community-building tools, career and commerce opportunities,” said James Hartford, chief executive officer. “I am a former Reebok executive and my management team is comprised of industry veterans with more than 125 accumulated years of sporting goods experience. The first critical component of establishing a successful Web site is to have domain expertise.

“Technology is easy to come by. Everyone is working on a technology solution,” he added. “What is critical is: ‘Do you know the intricacies of the industry?’ With our combined knowledge, we intend to improve the sporting goods industry, which at present is a fragmented and inefficient collection of sub-industry groups, trade associations, trade publications and trade shows,” he said.

“This company assimilates industry buyers, sellers and other key decision makers in one open marketplace platform to create the industry standard for B2B e-commerce,” he said. “We already have a database of 45,000 individuals in 24,000 companies. We are going right to the end user.”

Liquidation.com has established itself as a destination site where business in 75 countries purchase and sell surplus inventory in five categories: apparel and textiles, consumer merchandise, military surplus, office-supplies and construction and construction-related products. The site charges a flat 10 percent commission on sale of merchandise. There is no fee for registering with the service.

“Our buyers include small- and medium-sized businesses that want below-wholesale value on quality merchandise,” explained Bill Angrick, chairman and chief executive officer, liquidation.com.

“The Internet facilitates bringing sellers in front of buyers,” he added. “We have parlayed that by showcasing overstocks and discontinued items. For instance, the fashion industry can be very fickle. If apparel is not moving, or if a label has been changed, we can help unload excess product.”

Customer service is among the site’s strong points, stressed Angrick. “We embrace all classical principles of successful service companies and incorporate them into a Web-enabled environment,” he said. “Everything is under one umbrella. We provide centralized, end-to-end management of the entire business transaction from initial bid to final delivery.

“We also integrate online and offline customers through anonymous postings and biddings; have insured escrow services that essentially guarantee payment to the seller and satisfaction to the buyer; and provide complete logistics support, including door-to-door shipping, tracking and cross-border transactions,” he said.

Keeping in close contact with buyers allows the site to study their buying habits and anticipate interest in related purchases. “One of the wonderful things about the Internet is that it facilitates one-to-one marketing,” said Angrick. “We capture a screen profile of each customer and send customers intelligent e-mails when we get an item that may pique their interest.”

Oralis has taken a bite out of the $8 billion global oral health care supply industry.

“We provide dental supplies on the Internet,” said Pierre Gallant, president and CEO, Oralis. “Our unique approach includes competitive pricing, unp

aralleledservice and true one-stop shopping for oral health care professionals. By knowing the dental and e-commerce industries intimately, we are able to offer our busy customers a more efficient and convenient way to order supplies.

“We also provide administrative benefits,” he added. “Most important thing is that we are improving the way our clients run their businesses and increasing their profitability. The ordering process used to take eight hours a week, accomplished by paging through at least 20 catalogs. Now, the procedure is completed within 20 minutes. Our goal is to make the process so easy, when customers come back, they brings two friends.”

Clients are charged a fee to use the service. The size of the office determines the cost.

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