illustration by georg wagner
strategies
by Daniel Corsten and Joerg S Hofstetter
St Gallen
It is commonly assumed that
consolidation will reduce the
number of B2B exchanges
serving the consumer goods
industry. Don’t believe it. In fact
new, specialist exchanges will
emerge, and managing multiple
B2B channels won’t be easy
after the hype: the emerging landscape of b2b exchanges
summer 2001
vol. 1, no. 1
journal
After the hype:
The emerging landscape of B2B exchanges
© ecr
How many B2B exchanges can the consumer goods industry support?
Early hype about B2B exchanges’
potential to revolutionise buyer/seller
relationships is now giving way to a
much more sober assessment.
According to industry sources, only 23
per cent of the hundreds of B2B
marketplaces which have been
announced have conducted their first
trade. In our research, we identified 50
exchanges, but only half-a-dozen have
surfaced as major players.
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daniel corsten and joerg s hofstetter
summer 2001
vol. 1, no. 1
journal
© ecr
52
Daniel Corsten is senior
lecturer at the University
of St Gallen and Deputy
Director at the Institute
for Technology
Management, University
of St Gallen, Switzerland
Joerg S. Hofstetter is a
Senior Researcher at the
University of St Gallen
Institute for Technology
Management.
Nowadays, it’s commonly predicted that
the industry’s Big Four – Transora, cpg,
Worldwide Retail Exchange, and Global
Net Exchange – will eventually
consolidate down to one or two superexchanges, with all the others
vanishing. In fact, the opposite is more
likely to occur.
Different types of exchange are
emerging with different specialist
offerings. There is no single “best way
forward”. As a result, companies cannot
sit back and wait for consolidation to
simplify their choices as to which
exchanges to work with. Instead, they will
need to adapt to a multiple-exchange
environment, and to establish clear
criteria for choosing which exchanges to
work with – and why.
The early days
Early B2B exchanges were hampered by
three major flaws. First, they were too
price-focused. They were driven by a
simplistic, micro-economic vision of a
perfect, commodity-like market, where
goods are sold via spot contracts. They
consequently concentrated on providing
services such as auctions, or other forms
of electronic matching of customers and
suppliers.
In practice, however, only 10 to 20 per
cent of trade is sold on spot-contracts. As
The Economist commented, by “focusing
on the exception rather than the rule,
[exchanges were] bound to remain fringe
players, starved of liquidity and ignored
by most big firms in their industry, which
continued negotiating contracts as
before”.
Second, their services were too simple.
They tended to use off-the-shelftechnologies (ie, middle-ware and
databases), and because they saw buyers as
the key beneficiaries they focused on
auctions or bundling buyer power.
Consequently they failed to attract
suppliers and were soon starved of traffic
and liquidity.
Reverse auctions, competitive bidding
and request-for-quotation services have a
role to play within B2B exchanges. But
retailers, for example, quickly realised
auctions would be restricted to nonbranded goods, ie, bulk and commodity
items such as white T-shirts or standard
household electronics. As the ceo of one
major European retailer commented:
“Auctions are not a good way to fill
shelves.”
Third, as entrepreneurs launched
hundreds of exchanges covering every
potential activity in the value chain, there
was a tremendous proliferation of
standards and required data formats. As a
result, there were simply too many
interfaces.
In the uk, for example, at one stage,
Different type of exchange are emerging with
different specialist offerings. There is no single
“best way forward”
Early B2B
exchanges
were too
simplistic
53
Definition of B2B-Exchanges
• B2B-exchanges are virtual, Internet-enabled
information, communication and transaction
marketplaces, where buyers and sellers meet, trade,
interact and transact. They are technological enablers.
Nothing more and nothing less.
• Buyer-oriented marketplaces aim to reduce
purchasing and transaction costs by offering auction
buying, demand aggregation, or e-procurement.
• Seller-oriented marketplaces increase buyers’
awareness of the seller’s product range and
capabilities by featuring on-line catalogues, address
book of distributors, or storefronts.
• Third-party-oriented exchanges earn money by
offering multiple buyers and sellers a platform to
pursue transactions. Services include matching
facilities, yellow pages for, integrated catalogues,
demand aggregation, or auctions.
• Horizontal exchanges provide general services, such
as logistics, certification, or maintenance, repair or
operating services “horizontally”, to many industries.
• Vertical exchanges serve the particular needs of a
vertical space in a value chain concentrating, eg, on
trading of crops, fruit or raw material, processed food,
wholesale, foodservice or retail.
• Exchanges are also distinguished by their sourcing
strategy (ie, spot or systematic sourcing) and object (ie,
operating or manufacturing inputs). Operating inputs,
eg, chemicals, gasoline, screws, and staples, are often
traded via spot contracts on “yield managers”, or
systematically on “MRO (maintenance, repair and
operating service) hubs”. Manufacturing supplies can
be traded via “open exchanges” or “catalogue hubs”.
after the hype: the emerging landscape of b2b exchanges
vol. 1, no. 1 summer 2001
Private
exchanges
will co-exist
with ‘megahubs’ …
journal
The emerging B2B landscape
As the industry matures, however, the
main forms of B2B exchange are becoming
clear. They include private exchanges,
consortium exchanges, “mega-exchanges”
and “meta-marketplaces”.
Private exchanges are exclusive
marketplaces, operated by a single retailer
or manufacturer, and restricted to its
suppliers or customers. Prominent
examples of private marketplaces are
Tesco’s Information Exchange, Sainsbury’s
Information Direct, and Wal-Mart’s Retail
Link. Recently, DM – Drogeriemarkt has
opened a similar platform in a pioneering
initiative in Germany.
Private exchanges can offer a wide
variety of functionalities, from web-edi,
exchange of inventory and pos-data, to
cpfr (Collaborative Planning, Forecasting
and Replenishment) and joint category
management.
The early start-up exchanges ran into
trouble because although they were open
to everyone, they lacked critical mass of
traffic and transaction volume, or the indepth know-how to adapt their
applications to specific industries’ needs.
They also lacked funds needed to develop
the full range of e-business services that
they promised to deliver.
The only way they could gain access to
this critical mass in these areas was to
convince the big players to invest as equity
members. Consortium exchanges were
the result. In the grocery industry, four
such exchanges dominate. wre
(www.worldwideretailexchange.org), and
gnx (www.gnx.com), which were founded
by retailers and are therefore retaileroriented. Transora (www.transora.com)
and cpg (www.cpgmarket.com), on the
other hand, were founded by supplier and
are therefore supplier-oriented exchanges.
Recently, gnx and Transora announced
plans for a mega-hub to bridge the two
exchanges, thereby effectively forming an
integrated exchange. Later, other
exchanges could join, perhaps even from
non-related industries, to gain economies
of scale on infrastructure utilisation.
This mega-exchange should provide
low-cost edi and xml transport and
translation services, but most of all,
should support exchange-to-exchange
interoperability, facilitating cross-value
chain applications including joint
promotions management, cpfr and other
services.
The mega-hub should allow members to
use the services of other exchanges
without the expense of building a
connection to the other exchange.
© ecr
As the market
matures
exchanges
will specialise
manufacturers were reportedly being
asked to provide product content in more
than 10 different and unrelated data
formats.
Figure 1
daniel corsten and joerg s hofstetter
© ecr
journal
vol. 1, no. 1
summer 2001
… and ‘metamarkets’
linking
different
exchanges
54
Participants could collaborate with
trading partners across the value chain
via multiple exchanges.
Meta-marketplaces pursue a similar
vision of interoperability, not by creating a
new entity, but by neutrally serving all
potential companies independent of their
affiliation with other exchanges. A
prominent example of a meta-market in
the consumer goods industry is the Global
Trade Master.
Global Trade Master has its origins in
the collaborative ECRnet platform for the
ECR community and is promoted by a
powerful consortium of eds, Oracle, sap
and hp. Global Trade Master will let users
roam across exchanges and provide
distributed catalogue and content services.
In our view, increasing competition
between exchanges in their search for
market share and liquidity will prompt
them to differentiate the services they
offer. To date, the Big Four have announced
that they would provide almost the same
services – replenishment, marketing,
procurement, retail and financial services,
collaborative planning, forecasting and
replenishment and supply-chain
optimisation.
However, to gain competitive advantage,
they will develop specialist services in
areas such as knowledge-management,
market research, data mining and
warehousing, processes (eg, integrated
Figure 2
promotion or product development),
catalogue services, supporting services (eg,
logistics), certification, credit and
financial services. These services will be
increasingly contracted from independent
exchange services providers.
Some exchanges will even build a
network of alliances to concentrate on
their core competencies. For example,
Transora is keeping only core value-added
services, including product catalogues and
cpfr, in-house.
Recently, it acquired Planet U, a
specialist for e-couponing and announced
outsourcing alliances with
Foodtrader.com, Novopoint, eBreviate,
Dynamic Trade, Freemarkets and uccnet.
On the other hand, cpg seems confident of
its ability to develop a wide range of
competitive services in-house.
The final key players in this mix are
co-ordination bodies who help build
consensus among stakeholders, define and
promote standards, demonstrate best
practices, and in some cases, publish
implementation guidelines. They are metaplayers who represent the collective
interests of their stakeholders and
influence the way business is conducted.
In the consumer goods industry, for
example, there are different layers of coordination bodies which are skilfully
linked through various boards. They
include ean International, cies, ucc
Co-ordination Bodies
GTM
Agro
Paper
Meat
Fruit
Upstream
Exchanges
PrivateManufacturer
Exchanges
M3
Meta-Markets
M1
CPG
WRE
Consortium
Exchanges
R1
M2
Transora
MegaExchanges
R2
GNX
R3
PrivateRetailer
Exchanges
Exchange Service Providers
Suppliers
Manufacturers
Retailers
As exchanges
specialise and
differentiate…
Increasing competition between exchanges in their
search for market share and liquidity will prompt
them to differentiate the services they offer
after the hype: the emerging landscape of b2b exchanges
vol. 1, no. 1 summer 2001
Competition
between
exchanges
will also
intensify
journal
… their
services will
get richer
Formative trends for exchanges
As e-business evolves, we can identify four
trends among exchanges:
1. Exchanges are moving to
collaborative services
Originally, exchanges focused on price.
Now, all exchanges are moving beyond spot
transactions to encourage collaborative
relationships. As one retail executive told
us: “Exchanges are the natural extension
of ECR.”
Implementing collaborative processes
between retailers and manufacturers is
difficult, however. For example, cpfr
requires sophisticated technical
capabilities that integrate many different
processes and systems, and are therefore
beyond what off-the-shelf technologies can
offer.
The other side of the coin is that, so far,
very few companies in Europe actually
employ full cpfr. If exchanges are
successful in this area, they could greatly
accelerate its adoption.
2. Exchanges are becoming specialised
platforms
Exchanges are moving from being
generalists offering all services to
specialists providing focused value-added
services. Only Transora offers hedging
services and international barter
exchanges, for example, while wre
services include a product-development
tool, including product design and preproduction approval.
Because of the peculiarities of the
consumer goods industry – including
factors such as short shelf lives, regional
supply and local consumer demand –
there will be room for exchanges which
cater for specific needs and deliver
tailored solutions.
In future, exchanges are likely to
concentrate on some core services that
they retain and fulfil in-house, and which
require considerable know-how in fields
such as finance, market research and
product development. They will then offer
complementary and ancillary services in
alliance with other exchanges, or by ways
of neutral service providers.
Transora is already actively forming
alliances with other exchanges or
technology providers which offer the
complementary services it does not wish
to develop and execute in-house.
3. Exchanges are operating in a
multiple-channel environment
Our research suggests companies will
actively trade via many exchanges. While
a company might be a member of a
particular “home exchange”, that
© ecr
(Uniform Coding Council), Eurocommerce
(for retailers), aim (for manufacturers),
and joint platforms, such as the ECR
National board, ECR Europe and the Global
Commerce Initiatives.
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daniel corsten and joerg s hofstetter
summer 2001
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Firms will
have to work
with many
exchanges
exchange is unlikely to enjoy an exclusive
relationship with that particular
company. Most businesses will need to
maintain links to many exchanges across
their supply chain.
In a recent workshop, managers
estimated that in future they would be
trading via eight to 10 vertical and
horizontal exchanges. Already, many
companies invest in several consortium
exchanges. For example, Coca-Cola,
Danone and Nestlé are involved both in
Transora and cpg-Market. One reason is
that each exchange has unique
advantages. Another is that they don’t
want to put all their eggs in one basket.
Successful companies will therefore
skilfully orchestrate a multiple-channel
environment – private exchanges to
enable tailored processes and give
competitive advantage; consortium
exchanges to multiply standard processes
and have wide reach; integrated
exchanges to offer seamless processes; and
meta-markets to give access to a multitude
of exchanges. Transaction flows could
follow this sort of pattern:
• Company-to-company direct. Large
transaction volumes between
manufacturers and retailers and their
partners (including ingredient, packaging
suppliers and logistics and financial
service providers) will be either routed via
traditional channels (eancom, web-edi,
fax, mail, e-mail), or their private
marketplaces. Often overlooked, there is
also a significant transaction volume
between different units of multinationals, eg, Carrefour, Ahold, Unilever
or Nestlé. They often employ dozens of
enterprise-resource-planning systems and
could well need the functionalities of B2B
exchanges within their companies.
• Company-to-company via exchange.
Large transaction volumes will be routed
between companies and open or
consortium exchanges, with the Big Four
and others taking the lion’s share.
However, we believe smaller exchanges
with unique offerings will manage to
generate enough traffic. A significant
portion will be routed between the
exchanges via meta-marketplaces or megaexchanges.
4. Exchanges will integrate upstream
suppliers. The challenge for the future is
to create a true business community from
consumer to raw material so companies
and exchanges are seamlessly connected.
Most current efforts are only focused on
the retail and manufacturer level, but
some exchanges are already linking-up
with upstream exchanges.
The downside is that these complex
communities will also be more difficult to
co-ordinate. Before B2B exchanges,
conflicting interests between retailers and
manufacturers were often mediated by
Successful companies will skilfully orchestrate a
multiple-channel environment of private, consortium
and integrated exchanges and meta-marketplaces
If companies want to develop collaborative processes
that are superior to their competitors, they will have
to invest in private exchanges
after the hype: the emerging landscape of b2b exchanges
vol. 1, no. 1 summer 2001
journal
… will
require
careful
thought
Implications for managers
The landscape of exchanges is changing,
but one thing is certain – exchanges are
only technological enablers and a new
form of intermediary which connects
companies to a larger network based on
common (global) data standards and (best
practice) processes – creating seamless
supply-chains. Exchanges could help
companies reach the next level of
efficiency. But they are not a panacea. The
belief that we are on our way to one
“super-mega-exchange” is unfounded.
There is no “one-way-best-forward”. Yes,
further consolidation is likely. But in the
end, there will be still more exchanges
than today. So companies need to
understand the nature of the emerging
exchange models and carefully balance
their pros and cons.
Here’s our assessment:
Internal exchanges: An internal
exchange based on intranet technology is
a prerequisite for efficiently managing the
flow of information and goods within the
internal network of companies. If
internal processes are not optimised and
well integrated, they cannot reap the full
potential of exchanges. Most major
companies still lack integrated standard
enterprise-resource-planning-systems for
their dispersed internal businesses.
Instead they have many different legacy
systems which have developed
historically, or are the result of mergers
and acquisitions.
Private exchanges: If companies want
to develop collaborative processes with
key customer and suppliers that are
unique, bespoke, and superior to the
network of their competitors, they will
have to invest in a private exchange. In
other words, private exchanges should be
used for core business activities, such as
buying and selling strategic goods and
services, or wherever competitive
advantages can be built to form superior
management of collaborative processes.
DM – Drogeriemarkt, Sainsbury’s, Tesco,
Unilever and other companies are
currently investing heavily in private
exchanges with information-sharing and
collaborative-process capabilities. WalMart is completely dedicated to its Retail
Link and has never expressed any interest
in joining a big exchange. Moreover, since
prices for exchange technology will
inevitably go down once technology
providers have recovered their
development costs, even smaller
companies will, in future, be able to create
© ecr
But choosing
which
exchanges to
work with…
ECR-principles. Today, retailers and
manufacturers sit with their competitors
on the boards of the Big Four, but who
mediates between the global consortium
exchanges or those on other levels of the
value chain?
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Different
types of
exchange…
their own exchange or lease space for
(virtual) private exchanges on existing
exchange infrastructures.
Consortium exchanges: Companies
which have invested in consortium
exchanges should understand their limits.
First, competition authorities are
concerned about their power. Second,
conflicting interests between competitors
who are often equity members of such a
profit-maximising entity could hamper its
progress. And consortium exchanges are,
by definition, “competitive edge
equalisers”. Competitors can hardly gain
competitive advantage if they all have
access to the same technology and
processes (unless they implement better).
For this reason, many companies will not
route the lion’s share of their core
business via exchanges.
Nevertheless, consortium exchanges
will remain necessary for dealing with the
multitude of small and medium-sized
suppliers and customers and for trading
non-strategic goods and services where in
both cases standardisation is key.
Mega-exchanges: These could
experience other difficulties. First, we
believe it is unlikely many companies or
exchanges will accept the invitation of the
mega-hub to become equity members in
the trading hub. For example, wre
recently announced it would not join the
mega-hub or co-operate with
manufacturer-oriented marketplaces in
other ways because it believed it could
offer the desired functionalities alone.
Second, mega-exchanges still have to
master basic technical challenges. For
example, the first trials to send messages
from a manufacturer via a manufactureroriented exchange (ie, Transora, cpg) via
retailer-oriented exchanges (eg, gnx,
wre) encountered some routing
difficulties.
Meta-markets: These have a very
ambitious vision. They want to be
“exchange integrators” which connect the
growing number of internal networks,
private exchanges, and open exchanges
and consortium exchanges across the
many tiers of customers and suppliers.
Meta-markets could benefit from emerging
peer-to-peer exchange technologies – such
as those used by Napster, which enable
users to directly swap MP3 music files
based on information posted on web sites.
If meta-markets apply this new
technology, they could allow companies to
interact directly, eliminating the need for
further intermediaries. But they have not
yet demonstrated proof of the concept.
How, then, will exchanges affect
retailer/manufacturer relationships? The
new business environment requires an
intensification of co-operation in the
industry. The Big Four are big, dynamic
organisations with significant resources
Competitors won’t gain competitive advantage by
sharing the same technology and processes. But the
environment requires intensified cooperation
…will offer
different
benefits
Useful reading
1. R Ferrari, (2000). Get Your Supply Chain
The new business environment requires an
intensification of co-operation in the industry
after the hype: the emerging landscape of b2b exchanges
vol. 1, no. 1 summer 2001
journal
Processes Ready For Trading Exchanges,
AMR Report.
2. Steven Kaplan and Mohanbir Sawhney,
(2000). E-Hubs: The New B2B
Marketplaces, Harvard Business Review,
Vol 78 No 3, pp 86 – 96.
3. A White, (2000). The Dating Game –
Searching For Liquidity In The New
Economy, Logility 2000 (www.cpfr.org).
Richard Wise and David Morrison, (2000),
Beyond The Exchange: The Future Of B2B,
Harvard Business Review, Vol 78 No 6, pp
86 – 96.
© ecr
Exchanges
need common
standards to
avoid
conflicts
competing with each other and driven by
the interest of their equity partners. They
are profit maximising and, unlike ECR
Europe and the Global Commerce
Initiative, they are not transparent.
There is therefore a strong need for an
open forum between ECR Europe, the
Global Commerce Initiative and the
exchanges to make sure consensusbuilding between retailers and
manufacturers continues, that duplication
of efforts and standards proliferation is
avoided, and to make sure destructive
conflicts do not re-emerge.
But still, companies need to find out
much more. We need to assess how
exchanges influence both existing
relationships and the structure of the
supplier or customer network. Companies
will also need better ways to judge the
strengths and weaknesses of different
exchanges; to find out how exchanges can
be seamlessly connected; how networks are
best governed; and how companies can
generate competitive advantage when they
share exchange infrastructures with their
competitors.
But most of all, we need to assess
whether – and when – exchanges really
bring bottom-line savings to the supply
chain.
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