B2B Tomorrow: Beyond Exchanges

That this philosophy undergirds one of the most immediate and dramatic shifts in worldwide business practice in the last 100 years would be even more astonishing if not for one over- arching fact: It appears to work.

In less than a year, the internet-based business-to-business (B2B) model has grown from an embryonic idea to winning broad acceptance among many of the biggest players in the game-from giant auto makers to massive convenience and department store chains. It has also captured the imagination of many small retailers who, like the global players, often stand to realize substantial savings in time, effort, and money.

But, as with many internet-based innovations, the current B2B model has passed out of its infancy and entered into what some industry observers think may be a promising, if awkward, adolescence. If there is an inevitability surrounding the emergence of the B2B model, there also will be inevitable problems of organization, management, adaptability, internal and external standardization, realignment of corporate culture, reassigning of jobs, and mutual trust among partners-a quantum shift by any measure.

What it looks like
The current b2b model is a kind of high-tech partnership most often operating around a platform known as an exchange. An exchange at its most basic is a type of e-marketplace performing two functions: it brings a group of dispersed trading partners together and provides software and protocols allowing the traders to conduct business over the internet-essentially assembling deals and agreements from start to finish.

For example, a car manufacturer needs a door assembly component for one of its new models. It publishes the specifications for the part on the exchange, allowing an approval of suppliers (also exchange members) to see and act on them. The exchange's software applications allow the suppliers of door parts to manage their inventory and supply chain, saving money by ordering no more and no less than they need to do the job.

There are three broad categories of exchanges, each designed to play a specific business role:

Industry exchanges developed for specific industries (Ford, General Motors, Daimler-Chrysler, and Renault-Nissan, for instance, have formed an auto exchange called Covisint).
Private exchanges formed by single large companies specifically for their trading partners.

Combinations of large or small companies coming together to form what might be called 'cross-cultural' or 'horizontal' exchanges for mutual benefit.

The glue binding the exchanges together are increasingly sophisticated suites of software applications. The first exchanges operated by using business-to-business software in a type of off-the-shelf, piecemeal approach. Applications may not have been integrated. Then came the advent of 'hosted internet-enabled procurement solutions,' in which business software providers such as Oracle developed integrated applications that could be licensed for an annual fee by exchanges, allowing members of the exchange to operate by using the same integrated software for all transactions. Having an integrated suite of software becomes vital to fully reap the rewards of an exchange.
With such suites of software applications, exchange members are not burdened with periodic upgrades, maintenance, or infrastructure concerns. Think of it as similar to leasing a car. Currently, such arrangements appeal primarily to smaller companies (the largest companies often develop their own dedicated software), but the bigger players may find hosted applications more attractive as more integration is introduced.-To be continued in the May 2001 Profit magazine. The full version will include:


• The reality check

• True collaboration: the leap of faith

• Leading the way

• Caution signs

• The 24-month sprint

Watch for this and other timely articles in the upcoming May 2001 issue of Profit magazine. Subscriptions are free to qualified readers. If you do not already receive Profit, subscribe now.