Members Only Exchanges

Building a private business-to-business exchange has its benefits - and challenges.

Public business-to-business exchanges may grab headlines, but private exchanges are grabbing market share. According to Stamford, Conn.-based Gartner Group Inc., about 30,000 private exchanges are either planned or operating, as opposed to only 600 of their public counterparts.

Private exchanges may link as few as a half-dozen suppliers or as many as several hundred participants. Users say the benefits include improved communication throughout the supply chain, which can lead to cost reduction (through lower inventory) and improved quality (because problems can be addressed quickly).

With private exchanges, "you deploy based on your own requirements," says Pierre Mitchell, an analyst at Boston-based AMR Research Inc. "You're the master of your own domain - in security, privacy, scalability. You don't have to agree on requirements with nine other multinationals."

So, what are the challenges involved in rolling out your own private exchange? Here's a look at three private exchanges and how information technology managers implemented them. Each firm had different objectives and took different tacks to reach its goals.

Toyota Motor Sales USA Inc., a Torrance, Calif.-based branch of Toyota Motor Corp., says it hopes to use a private exchange to whack about $175 million off its inventory. According to Gerald Braga, Toyota Motor Sales' corporate manager for procurement and supply-chain management, the company's parts-supply network encompasses about 450 North American suppliers and 1,500 Toyota and Lexus dealers.

"We control maybe $350 million of inventory," Braga says, and that figure doesn't include parts at dealerships. The company is implementing a private business-to-business exchange that "we think is going to let us significantly reduce that," he says. Toyota Motor Sales has boasted that it will save $30 million per year once the exchange is up.

To make the exchange happen, Toyota Motor Sales turned to i2 Technologies Inc. in Dallas. Toyota will use i2's TradeMatrix product to manage inventory and better predict delivery dates.

Braga says the project was driven by a desire to work toward daily ordering. "We had a real need for better collaboration at the supplier level," he says. "And we had to be able to communicate with the dealers at the opposite end [of the supply chain] to let them know when parts would be in." Thus, the important functions for Toyota's exchange include ordering capabilities, communication tools and demand-planning.

Dealer Daily, Toyota's proprietary parts-ordering software for dealers, will be integrated with the TradeMatrix tools. "That'll give us the front end and the back end," Braga says. "The in-between parts will all be able to communicate through that network."

The tools i2 will replace are ancient: homegrown systems developed 30 years ago, Braga says. "Even the most recent [Toyota ordering tools] still use Cobol," he says. "We're talking hard-coded batch processing."

Interestingly, though, Toyota isn't replacing its legacy ordering system altogether. Rather, an incremental shift is planned. The i2 tools will interface with the old Cobol operational systems, Braga says. But users will see only a new i2 interface that he calls an overlay. "As time goes on," Braga adds, "we'll replace the old system."

San Jose-based KLA-Tencor Corp., a supplier of process control and yield-management tools for the microelectronics industry, says having a small, private exchange is the secret to improved quality.

Last year, the company, whose annual revenue tops $1 billion, launched an effort to raise quality levels. KLA turned to Datasweep Inc. in San Jose, which makes business-to-business exchange and collaboration software for high-tech manufacturing firms such as PC vendors and makers of medical equipment [Technology, Sept. 25].

KLA created a business-to-business exchange that links the company to two major suppliers, and it's planning to add several more suppliers to the exchange this fiscal year. It tracks every component of every unit that the company has ever handled.

According to John Moore, e-quality project manager, KLA initially implemented the software in-house to work out the bugs before extending the program to suppliers. "We took the product and customized it quite a bit," Moore says. "It's a very flexible tool, but you always have the ability to create self-inflicted wounds."

Moore says KLA had an alpha test running in two divisions within eight weeks. The company projects quality improvements topping 25% in targeted areas. KLA is now extending its exchange to include traditional partners.

Getting the Word Out

If terrorists released toxic gas into the atmosphere above your hometown, it's a fair guess that you'd appreciate having a simple, browser-based means of tracking the resulting poisonous cloud.

That's an oversimplification of what Innovative Emergency Management Inc. does, but not by much. The Baton Rouge, La.-based risk-management consultancy specializes in disaster simulation modeling. Its clients include government agencies and the military.

While business-to-business exchanges are most often associated with product-oriented companies, Innovative Emergency Management is creating a private exchange for its service customers. According to Gary Asmus, a process and data engineer, about a year ago, the company decided to create a "knowledge-sharing database for corporate data." This would amount to a private exchange built not around making transactions but around providing information.

"We're a knowledge engineering company; we wanted to share this knowledge with clients," Asmus says. Because projects tend to take years to complete, sharing project-status information with clients could prove especially valuable.

Initially, Asmus says, Innovative Emergency Management planned to build the exchange itself, but "when we did a requirements list [and] looked at our development costs, [we decided it] would be more expensive to develop ourselves."

Having decided to buy rather than build, in January, Innovative Emergency Management chose Viador Inc., a Mountain View, Calif.-based company that specializes in "business-to-business e-portals." Asmus says that while much of the available portal/ exchange framework technology was "immature," Viador's E-Portal Suite was better developed.

Capacity, Breadth, Speed

One of E-Portal Suite's appeals was its ability to handle a large amount of structured data. It includes Viador Gateway, which allows efficient access to such structured databases as Oracle, Microsoft SQL Server and DB2.

"We needed to handle large amounts of structured data," Asmus says with a laugh. "You call the National Weather Service, they'll give you as much data as you can handle."

Steve Dille, Viador's vice president of marketing, says the advantage of the portal model is its breadth. "We are a framework," he says. "That lets you take any systems - legacy systems, CRM, etc. - and plug them in. We set a broader context."

To accentuate that big-tent philosophy, Viador has published all of its application programming interfaces. This makes it easy to plug customer relationship management tools and other products into a Viador framework, Dille says. "Half our customers build completely customized portals," he says.

Speed is another advantage of portal-style exchanges. Viador claims implementation times as short as several weeks. Innovative Emergency Management got its pilot program - an internal version of its knowledge-sharing database used by the company's six offices - up and running within a few months, Asmus says.

He's beginning to roll the system out to clients; the company plans to include three or four clients in the exchange within the next six months. This phase is simple in a portal-based system, because the only thing customers need is an access password.

Asmus says he has nitpicked with Viador over some interface details, but overall, "Viador's very reliable. You don't need to worry about details."

IT organizations planning private exchanges must define goals early and watch out for creeping implementation costs, experts say. With the field in its infancy, vendors are jostling for position, changing their claims almost weekly and often promising more than they can deliver.

Regardless of what any vendor says, IT managers should be prepared to apply a lot of elbow grease when implementing a private exchange. According to experts, wherever there's an interface between two applications or data sources, there are sure to be headaches.

Ulfelder is a freelance writer in Southboro, Mass.

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