e-Marketplaces share three basic attributes:

• Connectivity. e-Markets tie together players so they can transact commerce on multiple levels. There are many players in the B2B (business-to-business), marketplace connectivity space—some tools, some applications, some turnkey ASP models. The technology is here, but the question remains: Can companies leverage the technology effectively?
• Content. In a recent study, we counted myriad flavors of exchange content—information, direct materials, indirect materials, services, MRO, branded, white label, you name it. Exchanges must offer something uniquely valuable or add unique value-added services. Anything that is not unique and valuable is just a commodity, with all the good and bad attributes that go with that label.
• Charisma. Luring enterprises into exchanges is becoming a science. Some exchanges promise leverage over suppliers. Others describe a more effective sales channel that enhances margins. Others advertise flagship companies, industry segments, or hybrid models. This hype tends to freeze the market, but the ultimate delivery is frequently inconsistent with the sales pitch, leading to an implosion of the exchange. Early momentum, while difficult to achieve, is critical to attracting participants, and ultimately ensuring that all players realize real economic and strategic value through delivery.

The leading market makers have embraced some basic principles:

• Speed. Make a decision, and then execute. Experiment, pilot, try it, and change it. Rapid prototyping, learning, and iterative development in business strategy, process, partnerships, and technology is the winning attribute in the e-economy. Blind speed leads to destruction; judicious, decisive, and aggressive behavior wins. Aggressive behavior also includes aggressively abandoning things that are not working and pursuing more viable alternatives. Winning companies in exchanges and the emerging e-mediaries have started quickly with need-to-have capability. They continue to gain momentum through deliberate, rapid follow-through and increased differentiation through the development of additional business and nice-to-have capabilities. (The concept of continued momentum with deliberation could almost be a separate success category.)
• Simplicity. At the end of the day, supply chain performance is measured on quality, delivery and cost. Simply stated, focus on opportunities that have promise and improve the bottom line immediately. In the past 18 months, much of the e-market focus has been on indirect procurement because it represents a lot of spend, the materials, are not critical, and sourcing is usually straightforward. Direct, critical materials and spares and service materials are next. Many exchanges are offering instant supply chain performance, without any real way to deliver, and not understanding the significant effects of not delivering. The successful e-market players today have built simple models: They reinforce existing strengths, manage around weaknesses, and partner with organizations with unique capabilities and competencies. Most fundamental, everyone who participates must gain value.
• The Right Stuff. All e-markets and exchanges must provide something: information, hard goods, or services. They must also provide some added value, for example, enhanced terms, delivery, pricing, or availability of that unique material or with that unique value-added service. Commodity products, information, and services are more challenging because by definition, access to the material is universal and supply is abundant. The concept of lowest vs. best price is recurring in the dialog of procurement professionals worldwide as the e-market model expands. In the end, the "stuff" is critical, but the how, when, where, and how much of how you find it, buy it, and get it—reliably—will be key to the success or failure of a market.

The type of content, its degree of uniqueness or customization, and the specific requirements of the supply chain, should be evaluated to select the most appropriate e-market strategies.

For complex products or designed-in materials, exchanges are not going to deliver pricing advantage, since aggregation opportunity is minimal. However, an e-market that can enhance the operation of the overall supply chain can materially reduce total cost of acquisition. If the world's PC manufacturers decided to set up a supplier exchange, for example, there might be little value for Intel to play, and PC manufacturers would likely see no material cost reduction. If the PC makers set up an exchange to share and trade inventory, however, increasing the perceived availability and real inventory velocity, they would all reap tremendous benefits.

For materials of limited availability, aggregation models collapse. In the past, when companies or industry groups have had exchanges in place and constraints emerged, it was only a matter of time before combative bidding began and suppliers fell into the time-honored allocation and high price model. An effective e-market can actually dampen the effects of limited availability by dynamically routing any available inventory to the point of most immediate demand. This requires sophistication and maturity in the organization of the e-market, but it is possible.

For standard or semi-custom hard goods, information, or services, it is fairly straightforward to implement exchanges and leverage their benefits. These materials tend to be multisourced, have reasonable lifecycles, and are suited for aggressive postponement services. The critical challenge in this space is that, while pricing advantage can be obtained through aggregation, supply chain performance is critical to actually delivering on time, with good delivered cost. Poor supply chain execution can eliminate any price advantage by creating a need for buffer inventory, causing lost revenue through shortages, or increasing costs through hands-on, expedited freight.

Commodity products have been on the leading edge of e-markets, particularly in the indirect space. Commodity materials can be assumed to be price neutral; only in the most extreme situations will the commodity space be based on pure price or supplier leverage. The key attributes on the commodity side are the real value-add services or performance.

Actual supply chain execution capabilities differentiate the real deals from the vaporware crowd. When brokering, selling, or offering material in an e-market, the supply-side must have the stuff or be able to get it, and the demand-side must articulate exactly what it needs—without cheating.

For years, supply chain science has focused on eliminating variability and increasing the certainty and consistency of performance, particularly in the positioning of inventory and capacity. To achieve desired levels of material velocity and agility, companies need to have the stuff they are selling, and buyers need to value on-time delivery and high quality.

The easiest way to unravel an e-market is to demonstrate speculative behavior in selling, positioning, or allocating the material. This situation not only violates the everyone-wins paradigm but also drives up cost and risk along the extended supply chain. Profitability and the success of every member of the e-market is the responsibility of each member. At the same time, each member must live up to an agreed level of performance. However, some organizations tend to take advantage of the situation. While this offers short-term results, in the long term, it will limit their ability to play as a member of the extended market.

Supply chain order fulfillment is the Achilles heel of the Internet economy. Information accessibility, currency, and accuracy have been elevated to undreamed-of levels. Remember, at the end of every virtual supply chain, there is a factory, a warehouse, and a Teamster driving a truck or loading an airplane.

For single-unit purchases, the delivery challenge is still substantial, unless buffer inventories are an acceptable economic option. Supplier delivery performance, logistics challenges, hot orders pushing others back—supply chain professionals are grappling with these issues today. In addition, an explosion of not-ready-for-prime-time providers in the customer engagement, manufacturing, and fulfillment space means that even the basics may not be covered. The recent failure of some emerging B2C (business-to-consumer) players to fulfill orders, let alone to fulfill them profitably, indicates that more work is needed before the higher stakes of B2B can gamble on those capabilities.

When materials for an end-product rely on multiple critical components from several sources, the fulfillment challenge increases. Today, the predictability of inbound supply is poor enough that we have implemented vendor-managed inventory hubs to ensure that enough of the right materials are nearby. Of course, most of these hubs have about 30 days worth of inventory—inevitably all the wrong material and none of the high-demand goods. Typically, the OEM doesn't pay unless it consumes the goods (so where is the win/win?). The materials are positioned based on a forecast that probably was not developed collaboratively, and the vendors apply their own judgment, and so on.

This scenario is common and highlights the need for true supply chain synchronization. The Internet offers exceptional opportunity to integrate planning, order management, manufacturing, and fulfillment. Many of these capabilities are just now being developed and implemented. e-Markets must be able to synchronize execution across the trading partners within the exchange as well as with those outside or even in different forums. Without this capability, we will be unable to capture the original value proposition of the e-market.

For an e-market to succeed, all the players must have a mechanism to exchange product and technology-specific information on a number of levels throughout the entire product lifecycle.

For many materials, cataloging is straightforward, including single-use finished goods, most commodities, and many indirect materials. The more complex, technical, and designed-in the material, however, the more difficult the tracking and management of product data, technical specifications, and bills of materials. For short-lifecycle and rapidly evolving products, this problem can be debilitating to rapid new-product introductions.

The science of content development and management, product configuration, product data management, and B2B e-design is growing rapidly. Some of the emerging mechanisms are standards based, some provide common translation capabilities, and others enable a net-sourced end-to-end solution. Each should be evaluated based on the needs of the trading partners and their customers.

Some enterprises may benefit from avoiding e-markets, at least in the short run. At first, many e-markets will not have the capabilities to meet the needs of organizations with unique and specific business attributes. Companies that let others pave the way must be sure that they are not trading away longer-term strategic, operational, or economic advantage while they sit on the sidelines.

The key to success is not in deciding whether or not to participate in e-markets at all but rather in defining which products or divisions should participate in which markets and at what level. Companies that approach these e-markets with a solid strategic roadmap and a goal of achieving short-term benefits will enjoy the most success.

Companies with engineered, complex products with multipartner development and integration responsibilities might not benefit from a material-centric e-market. Such companies would be wise to implement a collaborative e-design capability. These capabilities are still incubating and are quite different from the existing aggregated-purchasing marketplaces.

Custom product companies with one-to-one or few-to-one supplier relationships would benefit more from an e-synchronized supply chain model. Since the leverage points are in the performance of the supply chain and not in sourcing, maximizing the visibility and control of execution has immediate value to all players in the chain.

Constrained materials, especially in today's steeply ramping economy, occupy significant mind-share for procurement executives. Shortages in tantalum capacitors (a component once judged a commodity) have impaired the growth of wireless communications products for the past two years. Many companies have resorted to the time-honored routine of turning the screws on the suppliers for more allocation. A collaborative model that appeals to a best price mentality might help increase the supply and reduce the pain during periods of shortages.

Supply chain professionals are realizing that most of the challenges in setting up e-markets are the same challenges they have faced since just-in-time was the latest fad. Operating at e-speed, however, requires companies to have their fundamental operations perform at levels that they have never achieved before. e-Markets are unforgiving.

Assuming that the enabling technology is or will soon be available, supply chain leaders need to focus attention on the true long-lead, hard-to-achieve strategic and operational issues. The following seven steps will help:

• Get help. There are already many technology tools and applications. Don't try to build your own.
• Line up the big guys. Do all you can to build, protect, and feed momentum. Surround yourself with the strongest partners you can, with a common goal. Don't be surprised if some of them are partners in the morning and competitors in the afternoon.
• Niches are nice. An e-market doesn't have to be large. If you have a capability or a need in a specific, unique area, attack it with fervor. There is a lot of strategic advantage and money to be had in small spaces.
• Focus on liquidity. Everyone in the market must benefit from participating. Players may join based on potential, but they will stay and contribute based on performance. Without shared economic benefit, the market will not survive.
• Know how you will execute. Understand the impact on all the players (especially yourself) and walk through every detail of getting those parts from point A to point B.
• Lead. There are more e-commerce followers than leaders, so there will be a few winners and a lot of folks fighting for the leftovers. Be out in front, but watch your step.
• Seek perfection. The Internet will not make up for poor performance and bad management; rather, it will highlight weaknesses. To be a serious player, attend to the basics.

Assumptions about e-commerce and the Internet-enabled supply chain have a shelf life of six months. But keep in mind that quality, delivery, and cost never change.