An interview with C. Edwin Starr

Q. I have yet to initiate an exchange strategy. As a buyer participant, what issues should I be thinking about?

A. Companies looking at how to procure and source goods through trading exchanges should begin with a thoroughly traditional look at the range of products and services they already buy. Fully understand the importance of those products, competitively speaking, and understand the availability of the supply market.

Then ask yourself these questions: Will your relationship with suppliers change if you source through an exchange? Are the items you buy enough of a commodity for you to purchase them from whomever might be selling them in an exchange? Does it matter to you where you buy these items?

Q. What should I think about as a seller participant?

A. For sellers, trading exchanges really get at the core of their business strategy for participating in the marketplace. With many exchanges emerging in and around particular industries, sellers can choose to join one of these exchanges, to develop their own, or to create their own industry standard and try to get others to follow. The answer will probably be based on fairly traditional business issues.

For instance, consider your position and strength in the market as a seller. If you own the market, you can set the standard for an exchange that others can buy into. Market leaders are often reluctant to participate in anything but private exchanges, however, because they don't want to share what they believe might be their competitive advantage.

Keep in mind that it takes extra effort to participate in multiple exchanges. Each exchange will require information about your products, pricing, contacts, and ordering procedures—all of which must be kept current.

Q. Do exchanges create channel conflicts between buyers and sellers?

A. Definitely. If one of your suppliers sells on an exchange, you should evaluate the benefits of buying through that new channel. Do you get process efficiencies? Better pricing? Better customer service? Will your business transactions be better because your supplier prefers—and is now set up—to sell through this new channel rather than selling direct?

As a seller, be sensitive to channel conflicts if you sell through indirect channels, such as distributors. Transactions in a trading exchange tend to be with end customers, which will cut out your distributors.

Q. We hear a lot about public vs. private exchanges. What's the difference and how does it matter?

A. Public exchanges focus on many-to-many relationships—many buyers, many sellers. Private exchanges focus on one-to-many relationships—one company and its suppliers or customers, or both.

Both exchanges improve the degree of integration and collaboration among companies. Both make participating companies more efficient at anticipating the needs of buyers or sellers and let them operate their extended supply chains at a lower cost.

Private exchanges focus primarily on closed-loop optimization. Public industrywide exchanges focus on multi-enterprise or industry optimization. Public independent trading exchanges seek to match a whole new group of buyers and sellers and generate price benefits for all. Conversely, industry consortia focus on increasing collaboration between existing trading partners, which reduces the cost out of those collaborations.

Q. How do trading exchanges affect a participant's business practices?

A. Trading exchanges get multiple parties not only to coalesce around standards but also to share the costs and benefits of deploying standards, which includes developing and implementing technologies.

However, standard technology is just one element. Even more complex is creating standard business practices. Exchanges are being developed to facilitate business practices in critical areas, such as purchasing transactions, collaborative planning, fulfillment, and logistics. Participating in an exchange will help standardize and improve your company's business practices to world-class status.

Q. Systems integration always requires some amount of business process reengineering. What's different about exchanges?

A. Integrating information systems is one thing, but effective participation in an exchange is predicated on a common approach to conducting business as well as on a certain level of business process capability.

For example, an exchange that supports collaborative planning would probably require buyers to share their forecasts with suppliers, and suppliers to provide available-to-promise (ATP) information to buyers. Many companies are just now implementing the ATP capabilities to take orders, to look at current production plans and inventory, and to net it all out. Therefore, the benefits of the exchange are limited by the least common denominator, that is, the lowest level of capability provided by the exchange's participants.

Trading exchanges will be driving a lot of activity in systems integration. In addition, we will see many companies increasing, improving, and aligning business process capabilities internally so they can benefit from participating in exchanges. For some exchange participants, this will be a tremendous challenge.

Q. How soon after joining an exchange should a participant buyer or seller expect benefits?

A. In an independent trading exchange, participants may expect immediate benefits because, potentially, they can quickly find cheaper sources for their purchases. Conversely, sellers may quickly find new and willing buyers for their products, provided those products are priced right.

In the industry consortia, companies will spend the first few months on basic purchasing transactions, which will result in some improvements in process efficiencies and an overall reduction in administrative costs. Significant benefits from integration will take longer: six months to a year after joining an exchange. The real answer, however, is that it depends upon the functionality offered by the exchange.

Q. Once I've come up with my strategy for participating in exchanges, what can I do to accelerate the time required to connect to a trading exchange?

A. To participate in a trading exchange, you must make changes to your business. These changes go beyond the technological, though information technology is not an insignificant part of those changes.

Companies should closely align their business processes to eCommerce capabilities in general and to those trading exchanges they are going to use in particular. Obviously, this alignment should be value driven—that is, you should implement the changes that will gain you the most return early on.

Q. Can specific tools and methodologies accelerate the process?

A. Accenture has created "Flexible B2B Marketplace," a generic industry-exchange-in-a-box that includes a set of integrated best-of-breed applications, a generic portal, and workflow capabilities.

Our Exchange Connection Wizard, for small buyers and sellers that might not be able to afford personal service, walks participants through a series of decision trees and the steps necessary to help them quickly plan their approach to trading exchanges. This includes understanding the numerous connections they need to make to an exchange and identifying the data they might need to make available.

We also have adapters to integrate different information systems into the different functional areas within the exchanges themselves, such as an adapter that links an SAP enterprise resource planning system to an Ariba marketplace.

Last, Accenture supports and hosts auction services, so exchanges can immediately provide that capability to their participants.

Q. What risks do trading exchanges face?

A. Trading exchanges face three primary risks. First, expectations. Buyers and sellers often expect huge benefits without a whole lot of work. They're in for a surprise.

Second, timing. Integrating technology and aligning capabilities takes time. Moreover, creating deep relationships with major trading partners takes time.

Third, relationships. In any trading relationship, you can put in too little or too much. That holds true for trading exchanges

Q. How is success defined for participating in an exchange?

A. Ultimately, success is measured by how much closer you can work with your customers and your suppliers. Whether we're talking about major supply operations or occasional spot buying, your success will be defined by integrating better with suppliers, by having the ability to give suppliers better information earlier so they can meet your demands more effectively, by reducing transaction costs, and perhaps by improving your ability to find sources and prices for non-strategic purchases.

C. Edwin Starr is a partner in the Accenture (formerly Andersen Consulting) Supply Chain Practice with global responsibility for B2B eMarketplace services and supply chain services in the communications and high-tech industries.