In my last column, "The Morphing of an Industry," I discussed the rapid changes in the U.S. and global automotive supply chain. It was, of course, difficult to attempt to fit all the pieces into a few short pages. Furthermore, the situation in that business sector is fluid, with new developments taking place almost every week. To cite just one example, since publication of the last column, the Big Three auto producers have sent letters to their dealers warning them not to sell automobiles to the dot.com auto brokers. They cite the potential violation of the same franchise laws that the dealers have cited in cautioning the automakers against selling vehicles directly to the consumer.

Standing in the immediate background of the picture is the electronics industry, which is playing a much larger role in the total product offering to the automobile buyer. The on-board global positioning systems (GPS) now being offered are just the tip of the iceberg. Industry experts say that in the not-too-distant future the integrated electronics available on your new car will represent as much as 20 percent of the selling price. More important from the perspective of supply chain alignment, these new electronic options might be the primary product differentiator from the buyer's point of view. We may well see the day within the next five years when the auto ads scream "Integrated Electronics by Sony, Body by GM!" In this scenario, control of the supply chain could shift from auto manufacturers and dealers to Microsoft or Sony.

Another issue we discussed briefly was the online supply networks being built in the auto industry for e-purchasing. The rush to online network purchasing is not unique to any one industry, however. In fact, it's a dull week when The Wall Street Journal (WSJ) does not announce two or three new initiatives in this area. For example, on May 15, the WSJ noted that "an international group of large chemical-industry companies pledged to spend $150 million over two years to form a comprehensive online chemicals marketplace." Two days later, the paper noted that, "Fourteen of the world's biggest mining companies agreed to establish a Web-based equipment and supplies exchange."

These industries are only the latest to join a raft of online supply networks in aeronautics, steel, consumer products, retail, paper, medical products, transportation, and farming. As of this writing, there are probably dozens more that have been formed, or are in the process of being formed but not formally announced.

That brings us to the logical question: Why all this action in online networks over the last six months or so? And the logical follow-on to that is: What are the implications for supply chain management?

To the first question as to why all the activity, it seems that industry segment after industry segment has finally recognized the important contribution that upstream supplier networks make to downstream customer value. Or at least that's what we hope it means. The online networks also could be a high-tech method of clustering additional leverage to beat up on suppliers.

But let's be optimistic. We see the emergence of Web-based marketplaces as a new and improved way to allocate resources more efficiently and substantially reduce transaction (acquisition) costs. The reduction in supply-side inventory and related costs can be translated into lower costs and improved value to the customer. The trading partners benefit from more efficient production, a streamlined inventory flow, and improved return on investment. In short, it's a win-win situation for everyone across the supply chain.

There seems little doubt that part of the reason for the flurry of online supply network activity is to beat some of the dot.com start-ups to the market. Following in the path of the traditional specialty business wholesalers, many of these start-ups have dared to focus on narrow vertical business markets—which critics claim just adds another layer of cost in the supply chain.

The notion of an industry buying group, by the way, is not a phenomenon of the new millennium. The idea of acquiring leverage through collective action probably originated in the agricultural economy and continued through the industrial revolution of the late 1800s. Readers from farming areas will recognize the "farm bureau" as a type of collective buying organization. In addition, throughout most of the 1900s, shippers cooperatives played an important role in the life of many shippers and carriers. These types of organizations remain important parts of the business process in the United States today.

Collective buying organizations—electronic or otherwise—will continue to survive and prosper as long as they can accumulate enough member buying power to provide products/services at less cost or higher efficiency than the individual member could obtain on its own.

The major difference between traditional collective buying and the more recent online supply networks is technology. Technology allows immediate access to a wider global supply network. It affords full pipeline visibility and the ability to search, select, transact, and track with minimum human intervention. Online supply networks lead not only to economies of scale in purchasing but also to economies of scale in transaction efficiency.

Now as to the implications of online networks for supply chain management ... If the online systems that are already in place or under development leverage technology to provide both of these scale economies, they will markedly increase overall supply chain efficiency.

If, on the other hand, these online systems use the technology to develop a bigger club to use on suppliers or if they end up concentrating only on purchasing leverage, then the impact on supply chains will be quite different. Rather than fostering stronger supply chain relationships, the online networks could trigger regression back to purely competitive interactions between buyer and seller. The cooperative, mutually beneficial alliances encouraged by supply chain management would become little more than impersonal transaction-by-transaction encounters in the business marketplace.

Will we take the high road or the low road? Only time will tell.