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Six Steps to Get Your Supply Chain Ready For Trading Exchanges


From the November 2000 edition of Managing Exports

Despite the talk of electronic exchanges, it is still the telephone, fax, paper, and electronic data interchange (EDI) that dominate the media of information and business documents exchange among companies. Nonetheless, logistics managers must not overlook the fact that transportation and logistics exchanges are the wave of the future and offer some truly great benefits. Namely, they integrate the identification of transportation and logistics service providers, initiate service requests, and transmit replenishment orders to suppliers and transportation providers. With such benefits, here are six ways to prepare your supply chain for online trading exchanges.

1. Companies Should Be Working on Readiness.

Internet-driven processes force internal and external organizations to come together and resolve problems of trust, collaboration, standard practices, and taxonomy. All constituencies need to focus on a readiness timeline for the potential integration of trading exchanges into supply chain practices.

A variety of software vendors plan to offer supply chain collaboration and integration tools and applications in the next few months. Some of these vendors include Adexa, Inc. of Los Angeles, Ariba, Inc. of Mountain View, Calif., Commerce One, Inc. in Walnut Creek, Calif., i2 Technologies, Inc. in Irving, Texas, IBM Corp. of Armonk, N.Y., J.D. Edwards & Co. of Denver, Manugistics, Inc. in Rockville, Md., Oracle Corp. in Redwood Shores, Calif., and webPLAN, Inc. in Kanata, Ontario.

In addition to relying on software to get your company ready for online exchanges, executive commitment is needed. Senior management must view the Internet as a supportive, integral, and supplemental means of doing business.

2. Companies Must Justify Exchanges.

Supply chain organizations need to justify the use of online exchanges on the basis of the depth of services provided and the set of benefits. The keys to enabling an e-supply chain will be supply chain-wide visibility, integrated planning, speed of information, logistics, and transactional and customer service capability.

To get the most from a trading exchange, look for it to offer:

  • direct and indirect procurement;
  • dynamic sourcing;
  • collaborative demand planning and forecasting;
  • inventory visibility and management;
  • supply planning and optimization;
  • intelligent order promising and real-time order status;
  • and collaborative logistics planning.

3. Business Practices, Processes, and Supporting Technology Need to Align

Companies will have to bridge or supplant information from their internal enterprise resource planning (ERP), supply chain management, e-business relationship management, and legacy applications to one or many trading exchanges (see sidebar, below), either via a Web browser or system-to-system communication.

4. Established Relationships Remain a Priority.

Companies must determine whether a private or public exchange will enhance relationships and brand loyalty. If a trading exchange squeezes suppliers on price or compromises services to customers, it is not worth it. Rather, private electronic services that complement and add more value to established channel relationships will prevent a better alternative.

If trading exchanges are not the sole or immediate answer to electronic connectivity within your supply chain, consider establishing collaborative processes with your trusted channel partners.

5. Companies Need to Consider Building Electronic Portals.

Companies managing their own complex global supply chains and those with smaller more streamlined supply chains will be better able to take advantage of trading exchanges by establishing their own electronic portals as an entry and exit point for electronic interactions.

Portals supplement communications with external business communications with styles that include personalization or filtering information to an individual user. Portals manage and personalize content such as catalogs, parts listings, and planning information and they can also support automated system-to-system communications and allow users to analyze data from multiple sources.

Finally, they give the supply chain professional a tool to facilitate the handling of alerts and exception messages. They can help coordinate logistics and transportation execution.

Vendors supplying products to build portals include Adexa, i2, Manugistics, Xelus, Inc. of Fairpoint, NY, and webPLAN.

6. Smaller Companies Have the Most to Gain in Utilizing Trading Exchanges.

Benefits accrue from the selling, buying, and customer responsiveness aspects of their businesses. By participating in a private or industry-focused exchange, smaller companies gain the benefits of reach and speed of transaction flow. The added capability of auctioning services to sell or buy uncommitted inventory or even post excess available capacity is open to smaller firm.

Recommendations for Using Logistics Exchanges

  • Do not ignore the implications of the Internet on the supply chain. Devote quality management time in understanding and influencing your company's value proposition for the Internet and its implications to both current and future supply chain practices.
  • Online trading exchanges can be positioned as an end-to-end supply chain cost savings alternative. Evaluate long-term use of a trading exchange based on its ability to impact supply chain best practices and provide quantifiable supply chain benefits.
  • Rigorously assess whether or not an exchange's services impact the critical supply chain competencies of plan, source, make and deliver.
  • Online selling, fulfillment, procurement and service present challenges. Don't make the mistake of believing that electronically-driven supply chain processes are an intergalactic concept.
  • Consider the use of electronic portals with supporting integration tools as the conduit for information integration with an external community.
  • Get educated on standards and industry consortium practices for the electronic exchange of information.
  • Seek out customers, suppliers and trading partners that have adopted the Web as a way of conducting business. Use this group as your benchmark for learning.

Source: AMR Research, Inc.

Four Online Trading Exchanges

Supply chain organizations need to determine whether a trading exchange selected as part of their selling, procurement, logistics or distribution strategy remains viable into the future. And while AMR Research, Inc. (Boston, 617 542-6600) has identified four types of exchanges (see accompanying table, below), each should provide certain degrees of benefit for the supply chain. At a minimum, these include:

  • information visibility and integration;
  • integration of sourcing with procurement;
  • collaborative and synchronized forecasting, planning and logistics; and
  • streamlined transaction costs.

Online Trading Exchanges-Purpose and Composition

Private Trading Exchange (PTE) Consortium Trading Exchange (CTE) Independent Trading Exchange (ITE) Vendor Trading Exchange (VTE)
Based on relationship to sponsor Based on industry supply chain participation Based on industry or market registration Based on industry or market affiliation
Manage interactions and collaboration with the sponsor's community Manage interactions and collaboration among industry participants Manage interactions and collaboration among exchange participants Manage interactions and collaboration among exchange participants
Suppliers and buyers known Select group of buyers and sellers Open group of buyers and sellers Open group of buyers and sellers
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